Page 8 - Evolve Magazine Autumn 2021 interactive
P. 8

Mark-Up or Gross Margin? Do you know the difference?
One area where I still see issues especially in in in smaller businesses is is the expression ‘Gross Profit’ So many retailers work from a a a a a a a a a a a a Gross Gross Margin which they presume will will be adequate and think that everything else will will then drop into place This is is fraught with difficulty as unless we we we know know where where we we we want to to to to be at at the the the end how can we we we know know know where where to to to to start? I liken it it to to to setting off on on a a a a a a a a a a journey without knowing the the the destination until we we we are some distance down the the the the road How do do we we we know know we we we have even set off in in the the the right direction in in the the the first place?
I can give you a a a a a a real practical example of this – some time ago I was working with a a a a a local village store
who had just introduced a a a a a new area in in in the shop selling all kinds of greetings cards The owner explained to me that this was a a a a a a a a a real ‘earner’ as as every card had a a a a a a a a a Gross Profit o of 60% I asked him if that included or excluded VAT he he he didn’t know! After checking he he he said it included VAT which at at the time was 17 5% - that meant his gross profit was only 42 5% Now I asked him what size of of order he had to to place He told me that most of of the cards he he he bought came in packs of 10 or 12 and he he he obviously had to ‘have a a a a a a range’ A quick calculation showed a stock holding of over £4 000 Now some greetings cards are seasonal so so so when the season season has passed those cards have to be put away until next year What is the value of that – he he didn’t know! Obviously some of his money would be tied up for nearly a a a year in stock he he couldn’t even put on sale! Now I looked at the display cabinets they were 8’ wide 4’ high and 2’ deep I asked him what he he paid for rent per square foot of the shop These display cabinets also needed lighting what did that cost?
Finally card dispensers are constantly being messed
up by customers selecting selecting and deselecting cards so someone has to keep following them around putting them back in the the correct slots How much time does that take at at minimum wage? Can you see where I’m coming from here? From his perspective the fact that it was was a a a a product which offered 60% Gross Margin was was the overriding issue as as as far as as as selling them was concerned and would provide him with a a a good return from any sales of greetings cards When we added up all the above costs his actual net profit was approximately 5% This didn’t even take into account ‘stock turn’ either i i i e e e e e how long does it it take to to turn all your stock into a a a a profit and how many times does that happen in one week month year?
On the basis that you can make 5% from selling cigarettes which can be fixed in in a a a a a display cabinet to the the wall and will probably turn themselves around 2/3 times per week it it became clear that it it wasn’t the best business decision he had made!
Once again I can give a a a a a a a practical example of this At a a a a a fairly large convenience store
I was giving a a a a a demonstration of of our retail management software In order to assess the functionality and information available the owner gave me an invoice from one of his major suppliers and asked me to to enter the the items into the the system so that they could track the the whole process from receipt of goods to to final sale When I got to to the pricing matrix I asked them if they worked on Price or or Margin as as I could enter either They assured me that they worked everything out on a a a a 30% Gross Margin and then adjusted the the price if it produced
strange results After entering the products and selling some through the the EPOS they told me me that the pricing on my system must have been incorrect as what it was was charging for the goods I had entered was was different to what their existing retail prices were I provided them with a a Gross Margin Report which showed that all items had sold at at 30% as directed However the the the son of the the the owner stated that the the the prices I was selling at at were not the the same as as theirs and that my system “couldn’t add up”!
Another mistake retailers make when trying to calculate their Gross Profit is failing to understand the difference between Gross Margin and Mark Up 89

   6   7   8   9   10