Many businesses often accidentally sell below cost in a tale as old as retail. This is a ticking time bomb for many retailers, particularly in today's world, where margins are razor-thin; understanding the actual cost of your products is required to survive. We had a software user who, until she implemented our Point of Sale (POS) system, did not realise she'd been selling a popular item at a loss for months. Her story isn't unique, but her turnaround is. Let's dive into how to avoid this common pitfall and how to use technology to stop this happening.
The Peril of Pricing Below Cost
Selling below cost quickly boosts sales, but it's a dangerous game as these loss leaders can easily backfire. Here's why:
- Eroding Profits: Every sale becomes a loss, slowly draining your business.
- Setting Unsustainable Expectations: It can only last so long, and you risk losing your customer base once prices increase. Customers who buy as you are cheap do not stay when your prices get real.
How it happens
Many retailers can miss the full impact of pricing below cost because there are many more factors than their purchase price. Consider:
- Shipping and handling costs
- Storage expenses
- Staff wages for handling and selling the product
- Marketing and promotional costs
When you factor in these hidden expenses, that price might cost you more than you think.
Get Pricing alerts
Our Point of sale software can be set up to issue a special warning if the price of a stock item being scanned is under cost. This warns people scanning that item at the cash register that something is wrong and needs to be checked.
If you feel that you may have a problem here or you want to check if you are selling too many items at huge discounts, I suggest you run the following report.
Press transaction enquiry, as highlighted in red. Now select the relevant options. It is actually a good idea to do it once and then do it again with different departments that appear and check out the results.
How POS Software Can Be Your Pricing Guardian
Our modern POS systems are more than just fancy cash registers. It is your first line of defence against pricing errors and a powerful tool for retail pricing strategy. Here's how:
- Real-time Cost Tracking: Keep tabs on your actual costs.
- Automatic Pricing Alerts: Set warnings for items sold below cost or at low margins.
- Detailed Profit Margin Reports: Analyse which products are your profit heroes and which are the villains.
- Set Minimum Margins: Establish a floor for your profit margins and stick to it.
- Regular Audits: Use our POS reports to review pricing regularly.
- Smart Discounting: When you offer discounts, ensure they're strategic and profitable.
FAQ: Common Pricing and Inventory Issues
Q: How can I quickly identify products that are selling below cost?
A: A sound POS system will allow you to set up automatic alerts for items selling below a certain margin threshold. You can also run regular reports to identify low-margin products
Q: How often should I review my pricing strategy?
A: Conduct a thorough review monthly at a minimum.
Conclusion: Technology as Your Profit Partner
In today's retail landscape, selling below cost isn't just an occasional mistake—it can be a business-ending blunder. But with our POS software and a keen eye on your numbers, you can turn potential losses into consistent profits. What we have is a powerful tool for making informed decisions about your pricing strategy.
