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:

1. Shipping and handling costs
2. Storage expenses
3. Staff wages for handling and selling the product
4. 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:

1. Real-time Cost Tracking: Keep tabs on your actual costs.
2. Automatic Pricing Alerts: Set warnings for items sold below cost or at low margins.
3. Detailed Profit Margin Reports: Analyse which products are your profit heroes and which are the villains.
4. Set Minimum Margins: Establish a floor for your profit margins and stick to it.
5. Regular Audits: Use our POS reports to review pricing regularly.
6. 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. 
 

Making fact-based decisions is vital to maximising profitability in your shop. We will discuss how you can leverage data in your Point of Sale (POS) software to evaluate stock performance effectively. By analysing sales reports and companion sales, retailers can gain valuable insights into which products drive profitability and customer engagement.

Understanding the Dynamics of Sales and Profitability

Operating a retail business requires consideration of every kind. The main aim of decision-making is always to identify what to sell through pricing for maximum profitability. However, it goes beyond just making sales; it involves knowing how much customer behaviour affects the quantity sold and profit margins earned per unit, among other things.

Evaluating Stock Performance

Step 1: Assessing Sales Data

The journey begins with delving into your Point of Sale (POS) Software. By examining your selling reports, you gain valuable insights into how each product performs regarding sales volume and profitability. But here's where things get interesting: what if an item sells well but doesn't contribute significantly to your bottom line? This is where the pivotal question arises: Does it attract customers who purchase other items?

Step 2: Navigating through Register Reports

1. Navigate to Register Reports in your POS Software.
2. Select "Top N Stock Sales for a Given Period."
3. Input a timeframe, like a year, and request data for the top 100 items by quantity.

Deciphering the Data

Upon generating the report, you'll encounter a wealth of information.

Out comes a report with the top sellers for that year. 

Let's take a closer look at this example:

In contrast, the item ranked 44th above it yielded a profit of $1159. This stark contrast prompts a critical question: Is the profit from the envelope sufficient to justify its presence in your inventory?

Unraveling the Impact on Sales Companion

To delve deeper into the matter, explore the Sales Companion feature:

1. Head to Reports > Sales Register > Stock Sales Companion Sales by Period.
2. Specify a period, such as the last financial year, and search for the product "ENVELOPE TUDOR."

Analysing Companion Sales

The resultant report unveils a list of items sold alongside the envelope, culminating in a total profit figure. Here's where interpretation comes into play:

How much of that profit of $265.01 would you have made anyway, with or without that profit? That is something you have to decide. 

Additional Factors Influencing Stock Performance

Sales data analysis is essential, but there are other things that a person should consider regarding profitability and stock performance. They include:

Seasonality

Some products may have varying demand levels during different seasons.

Customer Demographics

Knowing the demographics of the people who buy from you can help determine what to provide them.

Market Trends

Keeping up with what is happening in your industry and in general markets will also guide decisions on stocking and setting prices.

Making Informed Decisions

With a comprehensive understanding of your sales data and other influencing factors, you can make informed decisions to optimize your inventory management and drive profitability.

Call to Action

Today, people have found that they can significantly improve their business operations, grow sales, and provide better customer service through point-of-sale (POS) systems.

Our sophisticated tools can unleash many benefits if used. 

It is said that facts are the clear windows through which you see the world as it truly is.