For many items like magazines the best financial measure for is Gross Margin on Purchases (GMOP). What this formula measures how good people are in handling such a department.
GMOP = (Profit on magazine sales)/Cost
These are the steps to get it.
Cost =(Purchases - Returns)
For example, say a hundred of a title are delivered at $1.00. The shop sells five at 25% margin.
Profit is 5 x $1.00 x 25% = $1.25.
Their cost is 100 x $1 x 75% = $ 75.00.
Therefore, their GMOP = $1.25/$75.00 = 1.67%
That would not even pay the bank overdraft.
Now let say that the shop keeper took less of the stock and say kept only 10. In this case, this would free up 90 x $1.00 x 75% = $67.50.
As their cost is now (100-90) x $1 x 75% = $ 7.50.
The profit is the 5 x $1.00 x 25% = $1.25.
Their GMOP = $1.25/$7.50 = 16.7%
This is obviously better but not brilliant.
Now let us say that they were willing to lose sales, so they returned 97 of the magazines.
As their cost is now (100-97) x $1 x 75% = $2.25.
The profit is the 3 x $1.00 x 25% = $0.75.
Their GMOP = $0.75/$2.25 = 33.3%
This is what is happening as people reduce the size of their magazine department. Suddenly, its gets worth doing again.
