Your inventory numbers can reflect some very important metrics of your business, from sales numbers to losses. It’s vital that you pay close attention to your inventory and how it fluctuates as time goes by and new products are added or old ones are removed. By using great inventory tracking software (such as a POS system), you can ensure that your inventory numbers are always accurate and current. Here are five key metrics your inventory numbers reflect.
1. Sales Numbers
The most obvious metric that inventory numbers reflect is your sales numbers. How much are you selling, and of which product? How often are you selling that product? Does the product sell better during certain times of the day, month, or year? These are important questions that can all be answered by taking a simple look at your inventory numbers.
By identifying sales trends within your inventory counts, you can maximize promotional periods and create ad campaigns specifically designed to bring in customers during those high-sales days. With this vital information, you can also create a staffing plan to ensure you’re not understaffing during high-traffic days, or overstaffing during downtimes.
Sales numbers tell much more than just how much money you’ve made. They also help you plan ahead for orders, knowing how much of and when to purchase new materials and inventory.
2. GMROI
GMROI may or may not be a term you’re familiar with. If not, we’re going to explain exactly what it is and why it is so important to your business. Gross Margin Return on Investment is a metric that essentially lets you know just how much of a return you made on your inventory investment. Let’s say you purchased 1,000 items for $20 each. That’s $20,000. If you sold those items for a 50% markup, or $30 each, you made $10 per item, or $10,000. That’s a 50% GMROI.
GMROI is so important because it lets you know whether or not you need to find a different supplier for your inventory. Inventory can be expensive to purchase, and marking it up too much can cause customers to scoff at the high prices. Ideally, your inventory will be as cheap as possible without reducing its quality, saving you money and increasing your GMROI.
Data Analytics Concept by Dmitrii Kharchenko
The higher your GMROI is, the more profit you’ll turn on that particular product. Keeping GMROI high is as simple as analyzing the numbers and shopping around to ensure you’re getting the best deal on your inventory.
There are likely other vendors who can offer cheaper supplies, but as we mentioned before, it’s vital that you remember not to sacrifice quality, or you’re likely to lose some customers. Keep the quality high and the cost as low as possible, and you’ll find that crucial “sweet spot”.
3. Shrinkage
The amount of stock you have on paper (or in your inventory software) versus how much is actually available is referred to as shrinkage. Shrinkage can occur due to many factors, including shoplifting/theft, errors in inventory counts, or errors with supplier numbers (or fraud). Tracking shrinkage ensures not only that your inventory counts stay accurate, but also that your suppliers stay honest.
Sadly, there are vendors that engage in less-than-honest practices. You might order 10,000 units, and while it will certainly look like 10,000 units, it might only be 9,050. Those fifty items may get lost in the paperwork, never accounted for until the shrinkage is determined.
The NRF, or National Retail Federation, lists the national average for shrinkage at about 1.30% in 2018. Unfortunately, employee theft and shoplifting are still of the two main causes of significant shrinkage, with shoplifting accounting for a staggering 35% of shrinkage on average. That’s quite a lot if you really think about it. Nearly half of all shrinkage is due to external theft.
4. Missed Sales and Returns
Tracking your returns is important for two reasons. For one, it shows which products are returned most often, so you can identify what’s causing the returns and address the issues quickly. Secondly, it can help you identify whether or not stolen items are being returned for gift cards or other fraudulent payments.
Shoplifters can be incredibly clever with how they steal and return items. Non-receipted returns for store credit is a popular option, especially around the holidays. A shoplifter will steal valuable items, return them to the store, and essentially make the store pay them for the stolen goods in gift cards!
5. You Inventory Software’s Effectiveness
If your numbers don’t add up, and you’ve eliminated all other possibilities, there may be a problem with the way you count your inventory. Whether you still perform manual counts, or you use POS software that tracks your inventory, your numbers can identify key issues with the counting process.
Manual counts are generally prone to error, as they are performed by either you or your employees, some of which are probably less than enthusiastic about it. They’re also time-consuming, and errors can end up being quite costly in terms of labor needed to address and fix the issue.
If you’re constantly running into errors with your software, it’s probably a good time to shop around for better inventory management tools. Many modern POS systems have built-in inventory tracking tools, along with other tools to help efficiently run your business.
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