Inventory Management: The Merchandising Mix
If your retail or wholesale business sells a variety of products, each with a different gross profit yield, your overall gross profit margins can vary widely, depending on the number of units sold. Simply put, if you sell predominately high-yield items, your gross profit picture will be much stronger. Your merchandise mix is one of the factors in determining your gross profit yield.
The following two examples depict four products, totalling 80 units sold, each bearing a different selling price and cost. Look what happens to the Gross Profit percentage when we change the number of units sold for each item. We sold 80 units but, in example B, the gross profit margin drops to 35.5%, a full five points lower than Example A.
If your business model is based on a yield of 36%, you’re in trouble. You need to be constantly monitoring unit sales, dollar revenue and cost for each item you sell. Use this information in planning and adjusting your marketing and purchasing strategies to get the greatest yield from your inventory investment. Needless to say, you need a sales and inventory management system that provides this information.