Wednesday, July 29, 2009

Point of Sale in retail industry

What is point of sale?

Point of sale (POS)
indicates a retail shop, a check out counter in a shop, exactly where the transaction occurs. It tracks down both the sales and the inventory of the SKU’s. POS is considered equivalent to an electronic cash register. POS can be any hardware or a software used for check outs. POS are almost used in all the retail establishments such as supermarkets, restaurants, hotels and more. The process of transaction and tendering cash is essential for an organization. Incase if there is lot of transaction happening a POS would help you to save money than the cash register. POS finds solution for many of the problem that happens in your retail business. In case you are starting a new retail business investing in POS would be a brilliant idea. Many retailers generate revenue and profit reports, ordering reports and product sales reports through their POS software which is considered to be so difficult in the other ways.

POS for the retail world
– all types of stores from apparel to convenience

  • Allows you to manage different prices for various products

  • Conduct sales, clearances, and special offerings seamlessly

  • Create matrixes to track the same merchandise by different aspects (size, style, color)

  • Prevents items from being oversold by detailing how much is in stock, when it’s time to reorder, and whether or not to continue selling the item based on sales and popularity

  • Compiles data of purchasing trends to offer items that appeal to your customers

  • Saves critical shelf space by stocking more of the items customers want

  • Manages profit margins by noting which items sell the best compared to the prices you pay for wholesale merchandise

  • POS are most commonly used in stores such as

    • Liquor and package stores

    • Convenience stores

    • Smoke (cigar) shops

    • Apparel

    • Sporting goods

    • Hardware

    • Automotive parts

    • Furniture

    • Race tracks

    • Casinos

Benefits of using POS in your store

Equivalent to cash register

In an ordinary cash register you will be able to check only the days flow. It cannot give a detailed output on inventory, profit or selling products. But a POS can do all this. As a computerized cash register it can instantly tell you how much money is there, what are the items in stocks? What are the items that are running out of stock? It can act as reminder calendar too.

Preventing theft

By implementing POS in your system everyone be alert in their work. Even the employees would keep the track of inventory carefully because they know the stock is monitored. For instance in a small business POS can reduce the theft for about 2.5%.

Managing inventory

Managing inventory is by generating reports on the inventory and the sales that is happening. These reports help you to manage the flow of inventory and also it helps you to predict the needs in the future. Simply, it helps you to order more based on the reports not just by the prediction you have. It also helps you to understand which product needs more inventory? and why does it needs?

Managing specials

Discounts, coupons and offers are the most common phenomenon that happens in the retail world. But managing these discounts would be little difficult for the retailers As it runs in a short-term. By implementing POS it helps you to manage the current tracking and market down pricing too.

Reducing shrinkage

POS bring you the inventory report in a real time. So it helps you to understand the receiving and the inventory functions. Hence you are able to get accurate information on loss and out of stock materials. This makes you to improve your business easier.

Margin watch

Margin watch gives an account on materials what sells more and what sells less. By keep a keen watch on this the retailer can have more inventories on what sells more and inventory on what sells less.

Customer satisfaction

The barcode on the product will easily allow you to scan the material and it can speed up the check-out process. Even if you don’t use a scanner it can be made faster by entering the SKU number which is directly linked to pricing. Also it collects the customer’s data and helps you to reward them. Through the data collected by their transaction you can give more incentive programs too.

List of customers

POS software used in stores store the customer’s names and the address. This helps you to advertise by targeting on the particular sector of customers or also for promoting the products too.

Efficiency & Accuracy

POS software installation helps in improving the efficiency and accuracy. Improving efficiency means higher customer satisfaction, lower costs and higher sales. POS reduces the time spend on the paper work and also it reduces the time spend on doing double checking the inventory. Improving accuracy is effectiveness of pricing and advertising campaign. POS stores the price of the item and hence there is no need to cross verify every time how much it sells for. It gives the accurate results on the inventory of the item, revenue and sales. Hence it is easy to calculate daily gross revenue, cost and profit.

Using remote options

In a retail store access in remote is quite difficult. But by using POS packages it helps you to access from anywhere even where you are mobile or in an off. It gives access to different stores and able to take timely action when needed.

Flexible expansion

POS allows you to configure with many systems. It allows you to connect with various systems through the web or any connection method. This flexible option helps you to manage many stores from one location.

Some of the leading point of sale softwares

  1. Retail Pro

  2. Raymark

  3. polaris

  4. Shoper

Friday, July 17, 2009

Key Performance Indicators (KPI) in retail industry

Key Performance Indicator (KPI): Definition

Key performance indicators are those financial and non-financial or metric that are used to evaluate the growth of the organization (i.e.) how successful it is. On most cases Key Performance Indicators (KPI) is used in a long term organizational goals. Key Performance Indicators (KPI) helps a retailer to analyst the mission, identify the stakeholders and define the goals. The Key Performance Indicators (KPI) is also known as Key Success Indicators (KSI).

The Key Performance Indicators (KPI) is used in any fields such as schools (Graduation rate, Success in finding a job after graduation), Social service organization (Numbers of clients they are holding) and more. The Key Performance Indicators (KPI) for an organization would be Pre-tax profit, Share holder equity and more. The Key Performance Indicators (KPI) does not change often. It changes only when the goal is changes. They focus on what they are? and how they are measured?. The act of monitoring KPI is known as Business Activity Monitoring (BAM). KPI is basically associated with the organization strategy and concepts such as Business Scorecard.

What are the basic KPI a retailer should adopt?

Not all the retailers adopt the same kind of KPI to meet the organizational goals. But having certain KPI in an organization has become mandatory for a retailer. There are certain basic KPI to adopt by a retailer are such as,

  1. Sales – annual turnover, transaction made, basket spend, footfall - all against LFL and budget

  2. Loss prevention – Shrinkage loss, (stock loss or cash loss)

  3. Operational – availability, inventory integrity

  4. Salary

  5. Service – Complaints that are made

  6. HR development – training, coaching, staff turnover

  7. Variable costs – any expenses made at an additional cost are avoidable

How does the KPI helps in increasing your sales?

Once the KPI is defined it gives the clear idea about the goals and the measure and finally what to do with them? It gives a clear idea what is important in the organization and for what they have to work for to achieve. The KPI can be used as the performance measurement tool. It helps in managing the performance of the organization. Also make sure that everyone exceeds or meets the KPI. There are many KPI set by retailers in order to achieving in their business. Giving a vague KPI such as “Should have repeat customers” will not help you to meet the organizational goals. The best KPI would be “Employee Turnover” which you help you in calculating the performance of an employee.
There are five top most KPI are set by the retailers such as,

  1. Sales per hour – Statically compares one sales person with the other and determines who is efficient in selling and attending the customers.

  2. Average Sale – Statically compares the average selling price of a sales person. The higher statistics shows that the person has a wide knowledge on the product and the less statistics reveals that he lacks in the product knowledge or effective description.

  3. Items Per Sale – determines the ability of a sales person compare to sale.

  4. Conversion Rate – shows how many customers they have made from the visitors of the store.

  5. Wage to Sales Ratio – gives a graph comparing the hourly wages of a sales person to hourly sales they have made. This KPI determine their performance level and how effective they are.

Calculating KPI in retail industry

Retail Customer KPIs

  1. Customer GROSS Profit = Customer Sales - Customer Cost of Goods Sold for a period

  2. Customer Lifetime Purchase Value - Monetary value of each customer's life time purchases from the retailer

  3. Customer Profitability = Customer Sales - (Customer Returns - Customer Cost of Goods Sold + Customer Promotion Expenses + Activity Based Cost of Servicing Customer) for a period

  4. Customer Purchase Freq Count - Count of customer purchases transactions over a period of time

  5. Customer Purchase Value - Monetary value of each customer purchase during a period with an average value for all purchases for the period

  6. Customer Reference question - A rating from 0 to 10 that indicates if the customer would recommend the store.

  7. Customer Sales by Segment - This formula is dependent upon defining customer segments (based on age, education, lifestyle, income and other factors) and associating individual customers to specific segments.

  8. Customer Service Staffing = Face to face customer service staff count / total staff count

  9. Visit to Buy Ratio = Sales Transaction Count per period / Visit Count Per Period

Retail Financial KPIs

  1. Accounts Payable Turnover = Avg Accts Payable / (Cost of Sales / 365)

  2. Accounts Receivable Turnover Days = Avg Accts Rec / (Credit Sales/365)

  3. Acid Test Ratio = (Current Assets - Inventory)/Current Liabilities

  4. Admin Cost % = (Administration Costs / Sales )*100

  5. Average Inventory = (Beginning of Period Inventory + End of Period Inventory)/2

  6. Break-even ($) = Fixed Costs / Gross Margin Percentage

  7. Cash Conversion Cycle = (Days Inventory Outstanding + Days Sales Outstanding + Days Payable Outstanding)
  8. Contribution Margin = (Total Sales - Variable Costs)

  9. Cost of Goods = (Retail Price – Markup)

  10. Cost of Goods Sold = Beginning Inventory + Purchases - Ending Inventory

  11. Current Ratio = Current Assets / Current Liabilities

  12. Ending Inventory At Retail = Beginning Inventory - (Sales + Transfers out + Return to Vendor + Markdowns + Employee Discounts + Shrinkage) + (Purchases + returns from Customers + Transfers In + Markups)

  13. Gross Margin = Total Sales - Cost of Goods

  14. Gross Margin Return On Investment = Gross Margin $ / Average Inventory Cost

  15. Initial Markup = (Expenses + Reductions+Profit)/(Net Sales +Reductions)

  16. Interest Cost% = (Interest Costs / Sales)*100

  17. Inventory Turnover = Net Sales / Average Inventory

  18. Maintained Markup $ = (Original Retail - Reductions) - Cost of Goods Sold

  19. Margin % = (Retail Price - Cost) / Retail Price

  20. Markup % = Markup Amount / Retail Price

  21. Net Receipts = (Purchases + Transfers in + Returns from Customers + Overages) - (Transfers Out + Return to Vendors)

  22. Net Sales = Gross Sales - Returns and allowances

  23. Retail Price = Cost of Goods + Markup

  24. Return on Capital Invested = (Profit for the Year / Capital Employed)*100

  25. Sales per square foot = Total Net Sales / Squarefoot of selling Space

  26. Stock Turnover Days = Average Inventory / (Cost of Sales /365) number of days

  27. Total Asset Sales Ratio = Sales / Total Assets

  28. Turnover = Total $ Sales for season / Average $ Inventory for season

Thursday, July 16, 2009

Use of Inventory productivity in Retail Industry

What is inventory productivity?
Inventory is the amount of stocks (goods or materials) that is stored in a factory at any given time. The store owners need to know the amount of stock in the store or factory in order to place the order or to control losses. Thus inventory refers to both stocks in hold and the act of counting them. The success lies in for an investor when he turns the inventory into cash. An unwanted inventory in any product can decline profitability. While doing the analysis the investor has to be confident and clear in making five decision such as,

1. Mark up
2. Mark down
3. Buy more
4. Buy less
5. Don’t do anything

Thus, Inventory Productivity can be defined as the amount of sales and gross profit dollars an inventory investment generates over a given period of time, usually a year. And the most basic measures of inventory productivity are inventory turnover and gross margin return on investment (GMROI).

Inventory turnover
Inventory turnover help you to identify the turnover made from the inventory, and also buy more from that and turn that to into cash. Inventory turnover determines the stability of the store or factory and henceforth the profitability too.
The formula for calculating inventory turnover is:

            Inventory turnover = Sale (at retail value) / Average Inventory Value (at retail value)

Suppose if you have only inventory value at cost, you can calculate inventory turnover in the other way.

            Inventory turnover (At cost) = Cost of Goods Sold / Average Inventory Value (at cost)

GMROI (Gross Margin Return on Investment)
GMROI is a planning and decision making tool used by the retailers to calculate their profit from the investment made. GMROI measure inventory productivity that expresses the relationship between your total sales, the gross profit margin you earn on those sales, and the number of rupees you invest in inventory.

            GMROI = Gross Margin($) / Average Inventory at Cost = Gross Margin % x Inventory Turn

Wednesday, July 1, 2009

Gross Profit Margin \ Gross Margin Ratio

Gross profit margin is a term used in finance to determine the financial strength of an industry. Gross profit margin is how much profit a company makes after paying off its Cost of Goods sold and other expenses. It is also called gross margin ratio or net profit margin or net margin.

Basically Gross profit margin measures how much out of every dollar of sales a retail business actually keeps in earnings. The gross profit margin ratio is an indicator of a company’s financial health. More the percentage more is the profit. Gross Margin Ratio tells investors how much gross profit every dollar of revenue a company is earning. This metric helps to compare with their competitors and also to calculate their efficiency.

Examples: The Company buys SKU(item) that sell for $50 each. It costs $10 to buy the SKU and it also pays an additional $5 in selling that. That makes the company's net income $35 per SKU (50 - (10 + 5)) and its revenue $50. The profit margin would be (35 / 50) or 70%.

Gross Profit Margin Formula:

Gross profit margin = Gross profit ÷ Total revenue


Gross Profit Margin = (Revenue – COGS) ÷ Total revenue
Where COGS = Cost Of Goods Sold

To Calculate Gross Profit Percentage

Gross profit percentage = (gross profit / sales revenue) x 100