ROI Analysis: Part 1

posted on Wednesday, August 11, 2004
by Kyle Ritter

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Want more in-depth information on how POS solutions can increase your revenue? In this first part of our 4 part series discussing the return on a point-of-sale system investment. We will look at a cross section of a hypothetical business scenario with monetary figures and percentages based on industry average findings.

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 revenue
Growth 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.

More time available from the owner to focus on building their business rather than doing overhead and operations type functions.

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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