Where’s The Profit? Not “where’s the profit?” as in “I’m not making any.” “Where’s the profit?” as in, are there items or categories or types of customers that account for the lion’s share of my profits? [level-members]
If your shop isn’t profitable, that’s another question entirely, of course, but knowing where your profits are coming from is an important part of keeping those profits flowing and maximizing the profit you realize.
The mistake business owners make most frequently is confusing volume with profit. Simply selling a lot of a particular product or class of products doesn’t mean that product is at all profitable. Think of the volume of bread, milk and eggs your local supermarket. (Especially when a big snow storm is in the forecast.) Not only are those low-margin items as a rule; they’re frequently used as loss leaders, items priced to get customers into the store. (Notice that they’re almost always in a far back corner of the store to encourage impulse buys on the way in and out …)
That complicates your calculations. A low-margin, high-volume product that brings in the traffic has value beyond its direct impact on your top-line profits. If your PoS software is sophisticated enough, you may be able to see how frequently a product like this is a stand-alone purchase and how frequently it is part of a larger buy. Not conculsive evidence, but it does begin to paint a picture.
Don’t fall into the somewhat less common trap of confusing big ticket price tags with profitability. If your margin on the big ticket is the same as on the smaller one, great. But that’s not frequently the case. And your gross profit may be quite comparable to a lower-price item, but with more effort involved in selling.
Regardless of what your PoS system can track, you have a lot of data to work with if you track it and pay attention. Tracking that information is the only way to know if, for example, it’s worthwhile to increase your case discount on the 2nd case purchased. Does the discount increase the number of 2-case transactions enough to offset the slight loss in revenue? Track and analyze and you’ll price your goods to maximize profit.
photo credit: <a href=”http://www.flickr.com/photos/caliperstudio/2714536823/”>Caliper Studio</a> via <a href=”http://photopin.com”>photopin</a> <a href=”http://creativecommons.org/licenses/by-nc-sa/2.0/”>cc</a> [/level-members]