Download - Retail Management Calculating Profit
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Retail ManagementCalculating Profit
Koslesh Roy - 49Shaifali Gorakhpuri - 20
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Contents Markup Margin Stock turn Stock Productivity GM ROI
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Introduction Half the art of selling, is the art of pricing
What price is fair for this customer? What price will the market bear ? Consider supplier discounts, list prices, VAT,
acceptable margins Decide a profitable Price
Terms to calculate Profit Markup Margin
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Markup- Margin Margin:
percentage of the final selling price that is profit. Markup:
percentage of the cost price added on to get the selling price
Gross Profits Overheads (like fixed costs, corporation tax,
wages, etc) Minimum acceptable margins.
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Formula MARKUP = (SP -CP)
-------------- X 100 CP
MARGIN = (SP-CP) ----------- X 100 SP
Markup belongs to cost and margin belongs to sales
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Example: HUL offers Fixed Mark up of 6.66% on Tea; what price should you sell? MRP of BROOKE BOND, RED LABEL is Rs 181/-
Markup = (SP – CP) / CP 0.0666 x CP = SP – CP 1.06666 CP = SP Thus, CP = SP / 1.0666 CP = 181/1.0666 = 169.7 RS Margin = (181-169.7 ) / 181
= 6.24% Margin = 5%; SP = ??
Margin = (SP-CP) / SP 0.05 SP = SP-CP CP = (1- 0.05) SP SP = CP / 0.95 = Rs179/-
Sell BBRL Tea for Rs 179/- ; Gross Margin = 5%
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Margin vs Markup Chart 15% Markup = 13.0% Gross Profit 20% Markup = 16.7% Gross Profit 25% Markup = 20.0% Gross Profit 30% Markup = 23.0% Gross Profit 33.3% Markup = 25.0% Gross Profit 40% Markup = 28.6% Gross Profit 43% Markup = 30.0% Gross Profit 50% Markup = 33.0% Gross Profit 75% Markup = 42.9% Gross Profit 100% Markup = 50.0% Gross Profit
% Markup is always greater than % Margin
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Markup & Margins vary from product to product and for different SKU to SKU
To calculate markups for non MRP Products markups are added to the sum of total costs (pdt + transportation + taxes etc)
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STOCK TURN Means rotation of STOCK in a year. FORMULA = SALES / Avg Stock
• Eg. Sale = Rs12,00,000/-
Opening Stock = Rs.50,000/- Average Stock = Rs.50,000/- Stock Turn = 24 Times Stock Turn is always expressed in No. of Times.
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WHAT IS THE IMORTANCE OF STOCK TURN RATE?
The Stock Turn Rate ratio measures the effectiveness of inventory planning control.
A Stock Turn Rate that is too low indicates poor planning and lack of control.
Stock Turn Rate can also be used to calculate the proper beginning-of-month inventory level for each classification on the Open-To-Buy.
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STOCK PRODUCTIVITY How much Gross Profit is generated by average stock. Gross Profit in retailing is generated by cross force of
MARGIN and STOCK TURN. This is called ROSE – Return on Stock Employed. Formula – 1) MARGIN X STOCK TURN
2) (GP X 100) / AVG.STOCK
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GMROI FORMULA = (GP X 100) / Paidup Stock Gross Margin Return on Investment
(GMROI) is a ratio in microeconomics that describes a seller's income on every dollar spent on inventory.
Rs100,000 annual profit) / (Rs25,000 average inventory cost) = GMROI of 4.0
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THANK YOU