It’s no secret that 2020 has been a challenging year for retail businesses. Although overall sales have gone up in many sectors such as grocery, there has been a drastic change in prices, cost of goods, and promotions due to the impact of the COVID-19 global pandemic. This has made it more challenging than normal for retailers to track and measure the success of their key promotions and categories.
Shifting sales can hide areas of challenge or opportunity for retailers. And it’s important to know how to identify promotional inefficiencies to maximize overall margin improvement. By working with a trusted partner to identify true net cost and perform margin analysis, businesses can gain a deeper level of visibility into product and vendor performance.
What is True Net Cost?
The word “net” in terms of cost or financial data, means that there is a corresponding “gross” or total figure. The net or “true” cost of an item is the gross cost minus its financial benefit.
When comparing margin, the default measurement is to subtract cost from the sale price. And too often, this is where the margin calculation stops; whether it’s because the additional necessary data isn’t available or the effort to get to the true margin is too costly.
However, in order to gauge the true cost and margin of product sales, retail businesses must include promotional dollars into the mix. Due to the variety, timing, types, different points of application, and how funds are applied – correctly applying promotional funding to the product margin is often prohibitively difficult but absolutely necessary.
Margin Analysis
It is critical to accurately apply promotional funding to each individual product, vendor and category. This can be accomplished with the right expertise, data model and purpose-build platform. A partner with a proven track record of success and value in this area is a pivotal accelerator to gaining true net cost and true margin visibility into all of your products and vendors.
In addition, an experienced partner can also provide a wealth of analytics that focus on hidden opportunities like; seeking missing promotional dollars, unmet contractual obligations, cost changes, shifts between regular and promotional product mix, and various other insights to help maximize your sales and margin.
Technology and Analytics: pulling the data together
It’s important to seek out an analytics partner that maintains a purpose-built mass data technology platform that allows them to quickly ingest an enormous amount of data in a scalable way. This partner should be focused on helping you analyze and visualize the data available to give you a better understanding of your promotional effectiveness.
Through our advanced analytics services, PRGX has access to product, sales and cost data to compare true net cost and actual margins.
Want to learn more?
Check out the Maximizing Promotional Effectiveness with True Net Cost Analysis White Paper or Webinar where we outline how shifting sales can hide areas of challenge or opportunity for retailers and how to identify promotional inefficiencies to maximize overall margin improvement.