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Retail Management Calculating Profit

Retail Management Calculating Profit. Koslesh Roy - 49 Shaifali 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 ?

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Retail Management Calculating Profit

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  1. Retail ManagementCalculating Profit Koslesh Roy - 49 Shaifali Gorakhpuri - 20

  2. Contents • Markup • Margin • Stock turn • Stock Productivity • GM ROI

  3. 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

  4. 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.

  5. Formula • MARKUP = (SP -CP) -------------- X 100 CP • MARGIN = (SP-CP) ----------- X 100 SP Markup belongs to cost and margin belongs to sales

  6. 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%

  7. 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

  8. 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)

  9. 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.

  10. 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.

  11. 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

  12. 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

  13. THANK YOU

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