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Stock Sales

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Agency business is when you handle a product as an agent. There are many such products, for example, lotto, post office, newspapers, etc.

A typical SMB retailer would have been an agent for many different products in the past.

Today, critics would complain that this agency's work has low margins, which is often true. Plus, if the agency has a winning product, they will often tend to lower commissions and increase handling costs.

But, I would argue that the key to a modern retail store is to get the people in the door. One point is that a good agency often can bring in people. This is no small matter. Today, a typical major is happy to pay $30 in advertising costs to attract a prospective customer. If it works and they get them in your shop, how much is that worth to you to get a potential paying customer in your shop. How much in advertising do you or people in businesses like yours pay to get them in the door? As an agent, you pay nothing, and if they buy, you will make a slight profit, plus have a chance at extra sales.

Of course, the big question here is will they buy more? Yes, some products, like mobile rechargers, generally do tend to bring in good customers. Many, however, do not.

I recommend if you handle these products by checking your companion reports in your POS software.

This will tell you what sells with a product.

Go to Register reports.

Go to reports > Sales register > Stock Sales companion sales by period 

In options, put in, say, last financial year and put in the product. 

Now out pops up a report which will give you a listing of all the items that were sold with this item. It is worth examining this list. By rearranging your stock arrangements, you may get more sales. 

Then at the end, there will be a total profit. Now the question is, how much of that profit would you have made anyway, with or without that profit. That is something you have to decide. 

An analyst like me, as a first-level approximation in the absence of any other information, would probably say

  1. Some would have brought the extras anyway.
  2. Some would never have come. This is partly due to the large advertising campaigns many agencies pay.

So I would say 50% of this profit would be lost plus the profit on the agency work.

If you can do a better estimate, let me know. Big Data can help but you will need to ask us to help you there as few can do it in-house.

You now have a start on how useful that agency is to your business.

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A plan for displaying merchandise used to maximise profits is called a planogram. 

Now because retailers are starting to see shoppers back, many of our clients are checking their stock layouts. So many of our clients are ringing up our support about doing planograms so clearly my post on Monday about the division of stock into sales categories was interesting to our readers here.. A step by step approach to this is available here.

Before starting, look at the above diagram to see the concepts and what you will get out of these planograms. 

The goal is to use your space to the maximum. So what we are going to do is visually see a plan of what is happening in your shop. 

A sales report was used. We then divided the departments then divided the sales data by the linear measurement of each area and divided the result into the following groups.
 
Blue = Good (Top 20%)
Yellow = Average (Middle about 60%)
Red = Bad (Bottom 20%)
blank = Zero

This information was then marked on an actual shop entrance plan shown here. Now you can see how it visually shows the shop's sales information. See the two spots marked with the green arrows, particularly the red one. That is something to look at that spot; it is not pulling its weight.

It is often also interesting if you have spots in what should be in a dead area that is doing better than everything around them. Products that do well no matter where they are on the shelves are great for drawing people into the shop.

What is essential is to make two diagrams, one using profit and the second by numbers. Good products both brings people in and makes profit.

Whatever changes you make, keep the planogram and redo it in a few months to see what the changes did in your shop. Then compare the two planograms. 

Now click here to start on your planograms.

Note this is only the start we recommend these planograms for shoplifting and product placements but that is a subject for another day.

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If you look at the big retailers now, you can see that they are taking advantage of their vast amounts of data to build muscle to run their business. Here is an interesting piece of statistic. 35% of Amazon purchases and 75% of Netflix viewing now are based on computer-generated recommendations.

Ask yourself if they use it, why are you not using it? You have AI, too, in your POS Software. In our market space, it's the best and it is *FREE*.

So why are you not using your data to make decisions?

To be successful today, retailers must stay in tune with their stores' unique preferences and behaviour. Yet, there are too many stock lines and marketing seasons to do it properly manually. The best way to do it is with your AI. These tools are generally too expensive for small to medium retailers. This is unless they have our point-of-sale system as we have incorporated it into our software and issue it free. Using it, you will find it intuitive and straightforward to do. It does not require a lot of training. It is less work than the manual order.

Let's say you have a shelf for toy soldiers. You can not ask for unlimited amounts of toy soldiers. You have to decide how many to carry. So, our users can get a focus order. This is an advanced type of stock control method. It gives you an estimate of what you should order based on the time of year, the product current selling history and suppliers terms.

The AI follows the stock on hand and its business history. It then estimates the stock level required for these goods in the coming period. If it deems that the stock on hand is too low, it will recommend an order to a supplier. This is done with the speed and precision that no one manually can match.

 

 It is easy to set up and use for details. Please, click here

Data-driven ideas can create value throughout your business. 

 

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There are seasonal trends in retail based on weather but just as important are daily weather changes. These cannot often be planned for yet this often determines what we buy, e.g. on rainy days, you can find umbrellas on many shop fronts. Do you think this woman above is going to buy the same products on this day as on a hot day?

If you are not using weather, you missing out on sales opportunities.

So let us start small, and you can build later.

Find some interesting days

So first go here 

Put in the option for weather, your location and note some hot, cold, and wet days. We need a few of each.

Determine how weather affects sales in your shop

Keep an open mind as you may be surprised with different weather conditions, e.g. indoor toys, coffee and glove sales. So what we need is a detailed analysis of historical demand in your shop for these days 

Easy to get it, go to Register reports.

Now pick "Top N Stock Sales for a Given Period."

 

Now in the form put in a few hot days, instantly a report comes out that looks like this with your top sellers listed for those days.

Take notes of what is unusual.

Now do the same for cold and wet days 

“What if?”: Scenario Planning 

If it's a hot day, what do we want to bring to the front? 
If it's a cold day, what do we get to the front?
If it's a wet day, what do we put to the front?

Now prepare these goods in advance. You may need to do some ordering here.

Most importantly, have some signage ready to bring these goods to the public attention.

Create an Implementation Plan 

When the appropriate day comes, bring some of the goods and the signs to the front. Give them a chance to sell.

You can pick up much business by just looking at the connections caused by weather as it is one of the most critical influences on people.

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So we have here an item with three sizes, cups of soft drink.

The small cup cost is $4

A large cup cost $8.50

A medium cup costs $8

The positioning is not an accident here as the purpose here is to sell the large cup so we want it in the public mind. 

Now studies show many people will go for the large cup since it is *only 50 cents* more than the medium cup. The only purpose of the medium cup is to boost sales of the large cups. To make this strategy work, you need to be able to offer people three alternatives to similar products. The two cheaper options must be priced lower than the target. The marketing idea is that the target is better value or quality for only a little extra.

For a more detailed example and studies done on this idea, see the Decoy effect in the Wikipedia here.

This strategy is widely used. You can use it for just about anything eg pens, cards, dog food, cosmetics, etc.

Give this idea a go and as always, let me know how it goes.

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Today the number of returns is going up. Much is due to COVID, which has caused many of our clients to update their return policies.  

Unless you have a comprehensive and straightforward return policy, returns can be time-consuming. I say policies because you will find that your return policy has to be different for many goods.

One tip: many majors can transfer much of the cost of the returns to their supplier. See how much you can. What you need to check from your suppliers what their policy is in many situations. Plus be aware that many of your return is not your responsibility but theirs. For example, if you sell an item with a supplier claim, it is not your fault if it is false. 

Also, I do recommend is that you look through the return section of our software. You will find that it makes it quick and easy for you to handle and keep track of the returns.

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Now is not the time to keep a “business as usual” approach. COVID-19 has changed the retail scene. Do not count on your experience. You need to look at the data. 

See what items are driving you the most traffic and profits into your shop. Once you know your money-makers, you can move them to prominent places. The current retail theory states that you should put good products in a few places. This is because, in the age of COVID-19, the stress is on giving more space for your high-demand items versus showing many items.

First, let us find your *MONEY EARNERS*. It will only take a second.

Go to register reports and select the top stock report as marked with the red arrow here.

 

For this do this by all the shop sales. 

Put in the past 30 days, then select 40. This will give you your top 40. 

Then you will get a report with all the figures.

Now put these items in a noticeable place. The more places, the better.

This method works, try it! 

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Today many retailers who are approaching financial institutions are being asked by them to provide estimates. It is not that these institutions are worried about security as most of these loans the government is helping out with that now, what they are concerned with is can you pay the loans?

One of the best tools to reassure these people is the break-even analysis,  something that I have discussed here a lot but now seems to be mentioned a lot more.

The Break-even point, where profits are equal to expenses!

 

Although because of coronavirus, its all the rage now. It has however widespread use beyond that e.g. how much extra sales do I need to cover a proposed shop fit to make my initial investment back, how much additional sales do I need to pay back the setup and running costs of a loyalty program or how much extra sales do I need to increase my shop hours?

It is an invaluable starting point for finding out where you are at and where you can go. In this case here, is it better for the business to spend its spare money on a shop fit, a loyalty program or to increase its hours?

Here what the financial institutions want to know now is how much business could you lose and still pay your way? 

Now what people often do is give the figures to the accountant and let them do the analysis, which is what these financial institutions want but now they are being very flexible and often will take your figures. 

To calculate a shop's break-even point in you need to know the values of three variables: You can get it out of your profit and loss accounts

Sales turnover: This is simply your turnover (this one is generally easy to get)

Now go through your expenses and put them into these categories.

Fixed costs: These are costs that don’t change whether you sell a few or a lot. These are the costs of just keeping the door of the shop open.

Some examples are 

Rent

Full-time staff

Insurance

Electricity bills 

Bank repayments

Accountant fees

These need to be added up.

Variable costs: These are costs that depend on sales, the more you sell the higher they are:

Part-time staff

Cost of goods sold

Credit card fees

Now, these need to be added up too.

Notes here:

Some of these costs can get programmatic as to which category they are in when there is doubt the rule is to put them in fixed. Generally, unless they are huge, it does not matter much.

Also, often people argue that some of these variable costs change dramatically depending on volume. Well in most situations unless you go pie in the sky, they do not change that much, e.g. you can get a better margin on many items if you sell heaps but are you likely to sell heaps? Like everything, you do need some intelligence to use this analysis.

Now the formula is

Variable profit = (1- (Variable costs)/Turnover)   This gives you your shop profit for each $1 you sell.

Now the Break-even point is (Fixed cost)/(Variable profit)

 

Say for example you had a turnover of $550,000 

Your Fixed costs are $60,000 a year

Your cost of goods sold is $370,000

Your other variable costs are $40,000

So your variable cost is here is $370,000+n $40,000 = $410,000 

Variable profit = (1- (Variable costs)/Turnover)   This gives you, your Variable profit = (1- (410,000)/550,000) = 0.218

Now the Break-even point is (Fixed cost) /(Variable profit). This gives you your Break-even point as  (60,000)/(.218) = $235,714.29

This would signify that this business is relatively healthy from coronavirus as it can continue with over half the loss of its sales.

Once you get used to doing it, you will find that it typically is like half an hours work.

Now what a lot of retailers would do now is look at their basket reports in their point of sale software, see what a typical basket profit is and divided that into the Break-even point. This determines how many sales they need a day, but that is just the start because there are heaps you can do with it and this will be a subject for a future post.

If there is a lot of interest, I am quite happy to do a webinar on this calculation, so please let me know.

 

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Now, the stock levels in many shops are a mess. The reality is that the world is moving on and you need your stock right e.g. summer clothes in winter do not sell well. 

This needs to be addressed. 

I suggest that you look at a report that contains the sales of the stock items and the stock on hand figure. Here is one such report, the top N stock report which you can find in register reports here.
 

 

Put in the last two months and ten million-selling lines to include everything.


Now you will get a report, that has current sales figures and stock on hand.

 

 

Now you need to review these items ASAP

 

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Nice post

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Margins are often considered as being the most important KPI in stock control.

 

 

Like everything, once you get into it, it gets more complicated as different shops tend to have different needs and requirements. So we have a few different types of margins actually, and it is useful to run through them.

Gross profit margin

This is the difference between profit before expenses such as salaries, rent, advertising etc. you earned, and the cost of goods sold generally expressed as a percentage of revenue.

= 1 - (cost of the wholesale price) /(revenue) 

for example, you buy the goods for $35, you sell them for $60, so it becomes

1- 35/60 = .42 

Which as express as a percentage: 0.42 * 100 = 42%.
This is how you calculate gross profit margin

Your suppliers can give you this figure, and I strongly suggest that you ask for the gross profit margin, not the markup which some suppliers will provide you as it inflates their profit figure.

Actual margins

Is the actual margin with discounts included that you are getting? In the real world often what we sell at, is not what the supplier recommended prices are and as I discussed it already here, click here for more details.

Net profit margin

Is much harder to determine and involves you putting into the costs such items as salaries, rent, advertising etc. into the costs. The problem a point of sale software has is that much of this information is not available to it. Your accountant should be able to give you an approximate figure which will be in the form of

Your cost for the shop = factor x (cost of wholesale goods) + (fixed fee)

As the fixed fee is minimal on each item sold, what most people do is multiply the cost of wholesale goods by the factor. So say the accountant said the factor is 18%, the  actual margin is for example 35% for the item above then your net profit margin for this item is 35%-18% = 17%

This is a very useful figure to keep in the back of your head, as if you know an item has a margin of 15%, then if your is 18% which is often what it is in retail, you are losing money on that item. Note of course if you have lotto, you may need a few factors.

There is, of course, no definite answer to what is a good margin. It depends on your business, so I suggest you check with your respective industry and the ATO benchmarking here for an idea of what margins you should be getting. 

 

 

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