Compare products using three metrics: sales velocity in units per day, gross profit in monetary terms, and gross margin as a percentage. They show units sold per day, the amount left after subtracting cost of goods sold, and that amount as a share of net sales.
When planning purchases, account for seasonality and previous periods when the product was out of stock. Gross profit does not yet show the store’s result after operating expenses: subtract those separately to calculate operating profit.
Calculate sales velocity
Determine the number of units sold for a specific product and the number of days in the period being analyzed.
Sales velocity = number of units sold ÷ number of days in the period.
The result shows the average number of units sold per day. When planning replenishment, account for seasonality: average daily sales may differ across seasons. Also account for previous periods when the product was out of stock.
Subtract discounts and returns from sales
Determine net sales before calculating gross profit. This is the sales amount after discounts, returns, and other price reductions.
Net sales = sales before adjustments − discounts − returns − other price reductions.
Use this metric in the gross profit and gross margin formulas.
Compare the monetary result and margin
Gross profit shows how much remains from net sales after subtracting the cost of goods sold.
Gross profit = net sales − cost of goods sold.
Gross margin shows gross profit as a share of net sales.
Gross margin = gross profit ÷ net sales × 100%.
When net sales are zero, this margin formula cannot be applied because it involves division by net sales.
When comparing products, review all three metrics together. Sales velocity is expressed in units per day, gross profit in monetary terms, and gross margin as a percentage.
Operating performance requires a separate calculation:
Operating profit = gross profit − operating expenses.
Review pricing and placement decisions
Slow sales alone do not determine a single course of action for a product. If a product has a high margin, consider giving it more prominent placement.
A moderate price increase may improve the margin, provided sales volume does not decrease. Check this condition against sales results after changing the price.
Use Torgsoft reports for specific tasks
To view a ranking of products by number of sales, use “Quantitative Analysis of Sales”. It lets you rank the best-selling products for a period, with the place of sale and quantity shown.
To find products that have been in stock for a long time, use “Analysis of Long-Standing Stock”. Available actions include reducing the price, setting a discount, and returning the product to the supplier.
The “Incoming Invoice Profitability Analysis” report shows the remaining stock, its value at purchase prices, sales, returns and discounts amounts, revenue, and profit.
Distinguish product profit in Torgsoft from gross profit
The Torgsoft glossary classifies the invoice profitability report among reports with the “Product Profit” metric. It gives a separate formula for this metric:
Product profit = sales amount including discounts − returns amount including discounts − cost of sales + cost of returns − cost of write-offs.
This formula subtracts the cost of write-offs separately. Therefore, do not automatically equate the profit metric in the invoice report with gross profit calculated as net sales minus the cost of goods sold.
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