Retail ManagementCalculating Profit

Koslesh Roy - 49Shaifali Gorakhpuri - 20

Contents Markup Margin Stock turn Stock Productivity GM ROI

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

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.

Formula MARKUP = (SP -CP)

-------------- X 100 CP

MARGIN = (SP-CP) ----------- X 100 SP

Markup belongs to cost and margin belongs to sales

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%

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

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)

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.

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.

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

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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