Learn these 4 Inventory-Management Lessons Now

Lesson 1: A point-of-sale system is worth the investment.

How many times did you turn your inventory last year? Which products generated the most profit? You’ll learn the answers quickly if you keep good records. Manual systems like Excel spreadsheets or pen and paper are better than nothing, but they take time and they’re prone to human errors. In contrast, automated inventory-management systems help business owners save time and money.

Randy Phillips, vice chair of the ATA’s Retail Council and owner of Archery Headquarters Inc. in Arizona, said retailers should invest in a computerized system to ensure their business grows.

“If you want to sell $100,000 a year, there’s no way you can memorize what you need to buy and when you need to buy it,” Phillips said. “At that point, you’ve grown outside your bandwidth.”

Inventory-tracking systems also help business owners reduce theft, improve customer service, manage their money, and effortlessly track products.

Miles Hall, senior adviser for the consulting company Hall-N-Hall, said computer technology today is much better and far cheaper. “You can get a great point-of-sales system and its hardware, and put it in the cloud for around $10,000,” Hall said. “In the old days, you had to spend $50-to-$60,000 to do it. It’s a great investment.”

Hall also recommends hiring someone with inventory-management experience if you don’t feel confident or comfortable handling inventory. “Bring in someone who’s talented at a certain niche,” he said. “Have someone whose job is to handle – not sell – inventory, and they’ll pay for themselves over and over again.”

Log in to your ATA-member account to learn which ATA service providers offer affordable point-of-sales systems like ePRO or Celerant Technology.

Lesson 2: Learn to distinguish “margin” from “markup.”

Retailers must stock products that make money. Some folks assume they’re making money, but learn they’re in red at year’s end. If so, make sure you understand terms like “margin” and “markup.” Hall assures business owners they’re not the same thing.

“Salesmen for companies use the ‘markup’ term, but ‘margin’ is the world we live in,” Hall said. “Businesses need to understand these numbers make a big difference on their bottom line.”

The “markup percentage” is the percentage difference between a product’s actual cost and its selling price. Meanwhile, “gross margin percentage” is the percentage difference between a product’s selling price and its profit. In short, margin is calculated off the selling price, not the product cost. Therefore, retailers should use margin, not markup, to learn how much they’ll profit.

For example, Hall said a 30 percent “markup” on a $100 product creates a final selling price at $130. However, a 30 percent “margin” on a $100 product sets a final selling price of $142.86. That means a business operating on “margins” makes $12.86 more than one operating on “markups,” which means a 30 percent “margin” is actually a 43 percent “markup.”

Although both terms help businesses calculate price, they reflect profit differently. Knowing that difference helps you communicate with your business partners to ensure the profits you want. If you need help with math, several apps and websites can help you calculate margin/markup totals.