Key Performance Indicators (KPIs), which are essential for retail businesses, have been shared in five parts. This time, I would like to share a must-have measure not only for the retail business but also for other industries and businesses. This is the Stock Turnover Rate KPI.
Stock Turnover:
The most basic function of most businesses is to buy and sell goods at a lower price and then to sell at a higher price. There is a trade-off between buying and stockpiling goods at a cheaper price and selling at a higher price. The most important thing in both cases is to sell all the products you bought. Only then will you be able to make a profit and resell more products. This is called a stock turnover.
For example, let’s say you buy one product for 100 and now you have 100 products and you sell one for 110 in another area. If all 100 of these products were sold in one month, it would be a stock turnover once a month in this business.
If there is something wrong with the Sale:
In order to earn extra income during my working life, I used to buy women’s jeans at wholesale prices, and I used to sell them to my office and acquaintances. Resale at the end of the month. You need to buy at least 100 items from these wholesalers, and you have to choose the design that will appeal to the customers in the 100 items, as well as the shirt sizes that are best selling. There are a lot of clothes that are not sold out by the end of the month.
Because let’s say you have to buy one for 10,000. If you make a profit of 2,000 and sell it for 12,000 kyats, you will get a profit of 200,000 for 100 garments. But let’s say you sell about 20 clothes. So, if the capital alone is 10,000, then there are 200,000 clothes. That 200,000 is the profit that can be sold for 100 garments. So how hard do you sell 80 clothes a month? If you do not sell 20 clothes, in other words, if you do not have a stock turnover, you will lose all your profits.
So, it is safe to say that 20 new garments will be on sale next month. You can continue to sell. But as a wholesaler, you only have to buy 100 pieces of clothing, so there will be no new designs for next month. Next month, the remaining 20 items were sold out. Because it takes two months to sell a hundred garments in two months, the previous profit was only 200,000 to 100,000 per month. This is also the first time 20 clothes have been sold. In the second month, the clothes are not perfect and there are no new designs. Brand image may decline.
It would be even more difficult if those 20 pieces of clothing were not sold and became Dead Stock. So how do you break down these dead stocks? Will it be sold at cost? Buy a spare item and give it as a gift? 50% off promotion? We have to think about how much to buy as a gift.
Well, I think you can see the consequences of not having a stock turnover. To do this, you need to carefully measure the stock turnover rate in every business, not just retailers.
If Stock Turnover is Good:
According to my example above, when you can sell 100 garments in one month, you make a net profit of 200,000. Well, let’s say we want to double our profits, in other words, we want to get 400,000. So the way is to buy 200 clothes and sell them.
But when you buy 200 clothes, you have to double your capital. In addition, the transportation cost is doubled. Double storage space And so on.
Instead, think of these as actions that you must take on a regular basis. If only I could sell 100 pieces in two weeks. If you use the money to buy 100 more clothes and sell them in the next two weeks, you will make a profit of 400,000 with the same capital. In other words, it does stock turnover twice a month. To double your stock turnover, you need to have a good understanding of your customers. Only buy high-performance products. Have a good marketing plan. And so on.
The Formula Is:
The Stock Turnover Rate is calculated based on the amount of Cost of Goods Sold (COGS) within the stipulated period. If you take the average of the two inventory amounts at the beginning and end of that period, stock turnover. Or get Inventory Turnover. As a unit, it is often expressed in terms of frequency and percentage. Businesses usually calculate for one year.
Stock Turnover = Cost of Goods Sold / Average Inventory:
For example, COGS has 10,000 for one year; Year Inventory is 3,000 and year Inventory is 4,000. Let’s say So the average inventory is going to be 3,500. Stock Turnover = 10000/35000 = 2.85 times. This means that the business has a stock turnover of 2.85 times in a year.
As a stock turnover, the higher the standard, the better. For this, you can compare it with the turnover rate of other competitors as well as the year by month of your business. But for different types of businesses, the nature of each is different. The amount of inventory purchased varies. Different types of products are not always comparable. In some industries, due to the nature of the product, stock turnover occurs only once a year, but it can be very profitable. For example, importing and selling large excavators.
How to improve stock turnover…?
In order to have a good stock turnover, a business needs to understand its customers and make sales forecasts of what their products are selling at what time. In addition, the products. Analyze and identify best-selling fast moving items, slow-moving slow-moving items, dead stock, and stock options.
In addition, to get the price right to sell the stock. Doing the right marketing to increase sales and increase sales. Stock turnover must be done by choosing the right product and quantity. The most important thing is to have ways to clear out unsold dead stock items.
At this point, you should be able to understand and apply the Stock Turnover Rate, an important measure for retailers. Adequate knowledge can easily overcome serious difficulties. More Get Quotes Here…
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