ROI Analysis: Part 1
posted on Wednesday, August 11, 2004by Kyle Ritter
Our Prefered Point-of-Sale Solutions Provider |
There are two sides of the ROI analysis that need to be considered. The first is what the investment will be to purchase a retail automation solution. The second, and perhaps more important, is the cost associated with not purchasing the solution. All of the figures in this section are based upon a retail business that is doing $450,000 in annual sales and has 52% COGS.
| INCREASES | Monthly Impact |
| Revenue | $1575.00 |
| Gross Margin | $378.00 |
| Marketing Effectiveness | $136.00 |
| DECREASE | Monthly Impact |
| Capital Tied to Inventory | $101.25 |
| Inventory Labor Cost | $110.46 |
| Shrinkage | $90.00 |
| Re-stocking Expenses | $367.50 |
| Re-stocking Shipping Expenses | $84.83 |
| Checkout Process | $323.95 |
| Under-rings | $570.00 |
| Management Reports | $511.00 |
| Accounting Expenses | $541.20 |
Revenue Growth
Grow your top-line revenueGrowth in revenue is based upon data from thousands of installs and is driven by:
- More cash-in per customer through up-sells when they are checking out.
- Specific promotions to your customers that buy certain types of products.
- Better management of sales and promotions.
- Highly targeted marketing to segments of your customer base.
- Frequent customer discounts and volume purchase discounts programmed directly into the system.
- Knowing what products are selling at what times during the year and building promotions around those items.
Gross Margin
See an immediate impact on your contribution margin.Gross margin is increased through:
- Dramatic reduction in pricing errors.
- Tracking exactly which products are the highest margin and focusing promotions around those products.
- High margin up-sells in the checkout line or with sales associates.
- Knowing which products to stock according to what is really selling.
- Know what products are not selling and reduce dead inventory.
Inventory Management Efficiency
Inventory Management Efficiency is the cost of money for the amount of inventory overage that a business has at any given point due to lack of automated purchasing and inventory control processes. Example: If you have $3000 of extra inventory then that $3000 has a value of what it could be earning for your business if it was used elsewhere. Typically this is in the 7% to 11% range. Through automation, the business owner will be able to get daily buying reports of what products need to be purchased based upon inventory control levels that are pre-set in the system and changed when ever is necessary.
It allows the owner to run a Just In Time Inventory (JIT) control process and only stock what is absolutely necessary. Rather than having to have a significant amount of overstock, the owner will only have to keep exactly what is needed. This also represents a significant advantage to cash flow.
ROI Analysis: Part 1
ROI Analysis: Part 2
ROI Analysis: Part 3
ROI Analysis: Part 4
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