MARGIN

Nikhil Surve Ankur Darji Dhiraj Ghatge Sanyam Jain Pratik D. Patel

Meaning
Gross profit when an item is sold
Measures the relationship between the costs you pay and the price you charge your customers

Significance
Profit Survival of company To determine which product you should sell Higher margin, higher profit

Calculation of Margin
Profit margin in retail needs to be calculated in systematic manner . Following factors are to be considered while calculating the profit margin:Pricing Gross Margin Depth and Width of range Number of times a customer buy an item Other factors

Pricing
Cost Oriented Pricing Retail Price= Cost + Mark Up Percentage mark up is calculated as Mark up percentage on Retail Price = (RP-Cost)/RP*100 Mark up percentage on cost = (RP-Cost)/Cost*100 (Retail Price- Cost) = Gross Margin

Gross Margin
Gross Margin = Operating Expenses + Net Profit Margin Operating Expenses includes expenses to run business Net Profit Margin decided on the basis of ROI Gross Margin = Net Sales - Cost of Goods Sold GM % = (Revenue - COGS) / Revenue * 100

Depth And Width Of Range

Width means number of options offered Depth means number of units to be offered for each option or Higher the depth and width of the range , higher the profit margin the retailer is bound to charge because sales to stock ratio will be lower. Examples are wedding saree stores in shopping malls

Number of times a Customer buy an Item

Low profit margins for products which have high frequency of purchase such as staples High profit margins for less frequently purchased goods

Other Factors
Purchasing power of target customers Competition Operational expenses to run the store Time involved in sale of products Mark Up Mark Down

Mark Up
Markup is the difference between the cost of a good or service and its selling price. A markup is added on to the total cost incurred by the producer of a good or service in order to create a profit. The total cost reflects the total amount of both fixed and variable expenses to produce and distribute a product.

Initial Mark Up & Maintained Mark up

Initial markup retail selling price initially set for the merchandise minus the cost of the merchandise. This mark up determines the price at which the product purchased at a certain price would be sold to customers .
Maintained markup the actual sales realized for the merchandise minus its costs .

Initial Mark Up Formula

Initial Mark Up
=

Mrp.

Cost Price

Maintained Mark Up
Maintained markup The actual sales realized for the merchandise minus its costs .

Maintained Mark Up Formula

Maintained Mark Up Original Retail Price Cost Of Goods Sold

Reductions

Reduction It Denotes the value loss incurrered by the store on account of markdowns suffered by the store due to End of season sale , or special discount offered to employees or special customers . Shrinkages due to the employee theft and shoplifting may also be included as a part of the reduction . Cost Of Goods Sold (COGS) refers to the inventory costs of those goods a business has sold during a particular period. Costs include all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Costs of goods made by the business include material, labor, and allocated overhead.

Mark Downs
Temporary reduction in the selling price of an item to stimulate its demand or to drive a competitor out of the market. Permanent markdowns are created to remove a slow-selling item from the inventory. The timing and level of markdowns in a selling season is critical to maximising return on sales. This is often measured as revenue realization: the proportion of the potential original selling price achieved..

Factors Responsible to Opt for Markdowns

Wrong Buying Decision Wrong Pricing decisions Unforeseen Changes in Season & Climatic Conditions Lack of Clarity about the concerned categorys Target group Ineffective Handling of the merchandise Ineffective VM Lack of Promotion

 Thus Markdowns are the Value Loss for the product and thus make for a loss in net profitability of the Retailer .

Optimum Margin So As to Maximise Returns Maintaining/Increasing Margins

Pay a Lower Price to Vendor Charge Customers a Higher Price Reduce Price Competition
Exclusive Merchandise Brand Variants

Reduce Retailer Costs +Floor Ready Merchandise, Vendor Source Tagging

+Packaging -- Shipping, Display

Pricing At the Time of the launch of the product , a retailer has to determine the margin at which the product would be sold . The Selling Price not only has to incorporate every expense that is incurred while delivering the product , but also a certain % profit for the retailer .

Overall Margin
How to maintain overall margin ? Category Management Optimised Operating Expenses Optimised Manpower Costs Promotions Displaying New Products Inventory Management

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