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%!
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...
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.
- 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
- 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
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.
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
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...
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
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
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
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.
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