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Part 2: How to Get the MOST Out of Your POS Software and Maximize Profits...

Using Your POS Software to Control Prices and Increase Profit Margins

- By Bob Twain

After entering inventory and categories into your point of sale software (as discussed in our last article), you can use your software to gain more control of pricing, reduce errors, hit price points, and increase your overall profit margin by 1% to 5%!

Here's how...

Update The Prices In Your Pos Software - And Keep Them Up-To-Date

To get started, you need to update all the pricing information in your POS software and there's good reason for it. To get the most from your POS software and increase profits, you should use it to control ALL your prices. This will allow you to...

  • Control pricing from one place, so every single employee gives your customers the same up-to-date price.
  • Quickly print price tags at receiving (instead of keying or writing the prices by hand).
  • Instantly markup or mark down prices for ANY department or category. For example, you could make a couple "big sale signs" and use the computer to instantly run a 20% discount on all men's dress shirts for a 7 day time period. Then once the sale is over, your prices are instantly changed back.
  • Avoid price negotiations with the customer (because the computer never negotiates).
  • Reduce pricing errors by letting the computer calculate the selling price, instead of your employees.
  • Automatically calculate a special selling price (discount) for certain customers - so you never forget, make mistakes, and more importantly... you won't get bothered with questions about discounts.
If you're using POS software to control your pricing, it goes with out saying that you need to keep the pricing in your software up-to-date! Old pricing means lower margins and lost sales.

If You Have A Large Inventory, Consider Updating Your Prices Electronically

If you have a large inventory (like an Auto Parts Store for example) you might be thinking... It will take forever to enter all those prices! You're right. That's why I highly recommend that you up date your prices electronically. Here's how...

Most suppliers can send you a disk that contains all their product item numbers, descriptions, list price and cost in an electronic format. Then you can take this information and configure your POS software to load it automatically, so you don't have to type everything by hand - saving you hours and hours of time!

To import this information from your supplier's disks, you'll need to understand various file formats and how to manipulate them. Since there are so many formats, I suggest contacting your POS software provider and ask them for some help. Some software vendors will even format the information for you and make it really easy!

Consider Setting Your Prices Based On Margin, Markup Or Range

If you're like most retailers, you've realized that you can make more money by coming up with your own price, instead of using "manufacturer list". But if you have thousands of items in your inventory, it will take a VERY long time to adjust all those prices. In this situation, consider using your POS system to adjust your prices based on "margin", "markup" or "price range".

Your first option is to set prices based on margin. Some POS systems allow you to adjust your price based on a pre-defined profit margin. In order for your POS to make this calculation, you'll need to enter the cost of every single item. (If you're loading prices electronically, this shouldn't be a problem because most suppliers include the "cost" and "list" price.)

You could then, for example, set all your Briggs & Stratton Parts to hold a 30% margin. So if a carburetor throttle cost you $9.23, then the software would calculate a price of $13.18. Now, you're getting the margin you want, but you could come up with a better price point. You could probably sell just as many throttles for $13.49 or $13.99. Right? Fortunately, some POS systems solve this problem by allowing you to make a second adjustment that always rounds up to the closest nickel, quarter, dollar, and so forth.

Your second option for controlling prices is to markup from "list". So for example, you could bump everything by 10% over list price. Some POS systems offer more flexibility by allowing you to make different adjustments based on category and/or supplier.

You might be thinking, that will work fine for my lower priced items, but that will never work for my higher priced items. That's when you should consider your third option -- adjusting prices by "range". This simply means that you make same adjustments as discussed above, except you pre- define different "margins" or "markups" based on the price range that the merchandise falls into. Here's an example that I've seen parts store utilize...

Price Range
Percent Added to List
.01 to .49
.50 to .99
$1.00 to $1.49
$1.50 to $1.99
$2.00 to $9.99
$9.99 and up
Add 100%
Add 75%
Add 50%
Add 25%
Add 15%
Add 3%

Hit Those Price Points

This leads nicely into our next tip... Hit those price points. We all know that every item has an almost magic price point that allows you to maximize profits. Finding that perfect price usually takes A LOT of testing, but you can still make big improvements by making some common sense adjustments...

First of all, you should always shoot for numbers like 49 cents, 99 cents, $1.49, $3.39, and so on. Why price something at $3.07 when you can sell just as many at $3.39?

Second, it's very important for you to consider price points within each category. You should decide in advance the price points you wants to hit within each category - good better, and top of the line.

Your opening price might be $19. This would be a low end product or something you buy, so you can match low price competitors in your area.

Your good price might be $29. This would be a product offering good features and quality for the price.

Your top of the line price might be $49. This product would be the best product your customers will consider purchasing. You would only stock a couple of these special items.

Then you can even use 4 or 5 price points for certain categories.

Start With Your Fastest Movers

When evaluating and updating your prices, start with your fastest movers and the categories that make you the most money. Use your POS software to quickly print a report that shows your top 100 movers. Then look at a report that shows your most profitable categories.

Start evaluating the prices of those items, since they will have the biggest impact on your bottom line!

Use Your Pos To Quickly Run Clearances And Move Stagnant Merchandise

If you have stagnant merchandise, don't sit on it. Get rid of it, take the loss, and get something on your floor that will make you money! Your POS software will make this easier by allowing you to discount any category or range of merchandise, so you can move them quickly. Then you can quickly make some great clearance signs and get rid of those slow movers!

Track Mark-Downs And Negotiate Better Prices With Your Suppliers

If you utilize your POS software to track mark-downs and clearances, you can quickly print a report that shows your supplier that they represent 30% of your mark-downs and only 15% of your total sales. Take advantage of that information and use it to negotiate better prices for future orders.

Hopefully this gives you a few ideas of how you can increase your profits and get the most from your POS software. On that note, here's some food for thought...

By reducing price mistakes, hitting price points, and making small adjustments... you can add 1% to 5% to your profit margin. For a 1 million a year business, that's $10,000 to $50,000 of profit, in your pocket!

To your success.

Bob Twain

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