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MTS #08 – Inventory Pricing

 

SMARTSystem Management Training Series

Training Session #8 – SMARTSystem Inventory Pricing

Purpose:  To provide an overview of the inventory pricing options available in the SMARTSystem.

Keywords:  The following is a list of key terms used in the SMARTSystem that you should be familiar with and understand.

  • Mark-up – The amount added to cost to obtain the sales price of an item, e.g. $8.00 cost + 50% markup = $12.00 sales price.
  • Margin – The amount of profit from a sale expressed as a %, e.g. $8.00 cost, $12.00 sales price = 33% margin.

Note: Additional information on Mark-up and Margin is in the last section of this document including how these are calculated in the SMARTSystem.

Overview:

There are two methods used by the SMARTSystem to set sales prices:

  1. By Mark-up or Margin based on the landed cost calculated in the purchase order for each inventory item or you can
  2. Manually set prices for each inventory item.

For you to take control of your sales prices and set sales prices manually, select the following menu items:

          Control Info > System Control > Sales Options> General 

Click on this checkbox:

                   

          You must “log off and log on” for this setting to take effect.

To set the SMARTSystem for Mark-up or Margin, select the following menus:

          Control Info > System Control > Doc Selection

Select your desired option using the “PO Pricing Method” drop down menu:

          

The SMARTSystem can calculate Sales Prices based on Mark-up or Margin.  Only one can be selected.  The default option is “Mark up.”  Refer to the “Additional Information on Mark-up or Margin Options” at the end of this document.

You must “log off and log on” for this setting to take effect.

Product Type

The Price Level Factor used to calculate Mark-up or Margin is identified by the Product Type and each inventory item is associated with a Product Type.

The Product Type has two main purposes:

  1. To establish the percent of Mark-up or Margin for each inventory item, and
  2. To organize product on the Pick Ticket by Product Type.

The SMARTSystem will calculate your preferred Mark-up or Margin based on Product Type specified for each inventory item and apply that margin to Customer Sales Price Levels. Each customer is assigned a Sales Price Level.

  

Typically, your Sales Price Level 1 would be your highest margin down to Price Level 5 as your lowest margin.  Price Level 1 can be your walk-in customers and Price Level 5 your largest, best paying customers.  Only Price Level 1 is required. See and example below:

Purchase Order Processing

Purchase Order Processing will perform your Mark-up or Margin calculations based on the Landed Cost of the inventory item. See example below: 

In this “Mark-up” example, the Landed Cost is showing .403 (internally it is being calculated to 5 decimal places that you can override the calculated value to 5 decimal places) and based on the Sales Price Level 1 Factor in the Product Type table for Fresh Cut of 1.700 the resulting Sales Price is .684 or a 41.08% margin. This Mark-up is calculated as follows:

Landed Cost * Sales Price Level Factor = Sales Price

.403 (rounded up from 5 decimals) x 1.700 = .684

Note that the current selling price of this product at Price Level 1 is .690.  When the computer is calculating your Sales Price Levels you can override the calculated Sales Price to be .69 cents to maintain the same Sales Price.

Sales Price Levels 2 thru 5 are also calculated at this time and carried with this inventory item in this PO.

If you are using Sales Price Maintenance under the Management Menu the prices that you set will override the computer calculated values.

Inventory Items

All sales prices calculated or manually entered are stored in each Inventory Item. In this example, the Carnation Select Pink inventory item shows:

  • Current Landed Cost
  • Average Landed Cost
  • Sales Price Level 1
  • Sales Price Level 2
  • Sales Price Level 3
  • Sales Price Level 4
  • Sales Price Level 5

    Customer Sales Price Level

    When selling to a customer, the Sales Price Level set in the Customer Table for each customer refers to the Sales Price Levels in the Inventory Table for the items sold.  For example, the Sales Price Level for the Customer would show:

              

    Sales Price Maintenance

    Sales Price Maintenance is a sub-menu item under the Management Menu.

    This program shown below is used by you to set Sales Prices manually.  As you can see, this program provides several options:

  • Select by Vendor (Primary Vendor in the Inventory)
  • Round prices up to the nearest option:
    • None (default)
    • 5 cents
    • 25 cents

You can select inventory items by:

  • Category
  • Item
  • Color
  • Product Code
  • Description Search

A special feature of this program is to adjust inventory items selected by a special percentage, either up or down:

          

This option can be used when a vendor, such as Syndicate raises its prices 7% across the board for all products.

When you right click on a line you have several options:

  • Open Inventory Item
  • Copy Selection to Clipboard
  • Paste Data from Clipboard
  • Fill Dow from Clipboard
  • Clear Selected Cells

Using these options you can quickly update prices by:

  • Entering prices on one line for 1 or all 5 Price Levels
  • Right click and Copy Selection to Clipboard

  • Hold the shift key and highlight your selected area

  • Right click and fill down to update all prices in the group of products you selected

Click the Save Button in the lower left portion of the screen and you will get a confirmation “Saved/Updated Sales Price Changes.”

Volume Discounts

Volume Discounts is a sub-menu item under the Management Menu.

This program provides selection filters to select inventory items by:

  • Category
  • Item
  • Color
  • Product Code
  • Description Search

There is also a “Recalculate Prices” Button to globally update your volume discounts based on the selection criteria you enter and Disc % changes.

At the bottom of this screen you can:

  • Save your changes
  • Export your selected items to Excel
  • Import a previously export Excel file that has been changed which will update Volume Discounts.

The products you select will be displayed and you can create your Volume Discounts by:

  • Entering Quantity 1which is the first quantity discount
  • Enter Quantity 1 Discount Percent and the Sales Price will be calculated based on Sales Price Level 1
  • Do the same for Quantity 2, 3,4, and Over

You can also enter a Minimum Sales Price to check and prevent excessive discounts entered by a Sales Rep.

When you right click on a line a drop down will display your options:

  • Open Inventory Item
  • Copy Selection to Clipboard
  • Paste Data from Clipboard
  • Fill Dow from Clipboard
  • Clear Selected Cells

Using these options you can quickly update Volume Discounts by entering your changes on the first line:

  • Entering Quantity
  • Enter Discount Percentage

  • Hold the shift key and highlight your selected area
  • Right click and fill down to update all prices in the group of products you selected

  • Click the Save Button in the lower left portion of the screen and you will get a confirmation “Saved/Updated Changes in Volume Discounts Table.”

Additional Information on Mark-up or Margin Options

The pricing terms “margin” and “markup” actually represent the same thing, but from a different stage of a sale.

Markup represents a monetary amount of a product or service before a sale, while margin represents that same monetary amount after a sale. Some confusion can come up between these numbers, especially when represented as percentages.

The math to find out Mark-up percentage is:

Selling Price minus Landed Cost equals Mark-up (e.g. $70 – $50 = $20)

Mark-up divided by Landed Cost equals Mark-up Percentage (e.g. 20/50 =.4; you then multiply by 100 to get the percentage of 40 percent)

The SMARTSystem MARK-UP calculation METHOD:

  1. Landed Cost * Sales Price Level Factor = Sales Price

$1.00 x 1.60 = $1.60

       2. Sales Price = landed cost + 60% of the landed cost.

       3. Sales Price – Landed Cost / Sales Price

$1.60  – $1.00 /$1.60

SMARTSystem MARGIN PRICING calculation METHOD:

  1. Shows what the percentage difference is between the sales price and landed cost. To yield a 60% margin, the Landed Cost MUST be 40% of the Sales Price:

Landed Cost / Price Factor of 1.60   =  Sales Price

$1.00  / (1 – (1.60-1))  = $2.50 sales price

                         ^

   Ref 1

                              Ref 1:

1 – 1.60 = .40

$1.00 / .40 = $2.50

Here is an interesting video link regarding this matter:

http://strategiccfo.com/wikicfo/margin-vs-markup-2/

Practice Drills

The purpose of Practice Drills is to get you more familiar with the SMARTSystem and comfortable using it. 

  1. Login into SMARTSystem
  2. Go to the MANAGEMENT MENU and select SALES PRICE MAINTENANCE.Work with this program and get familiar with it.
  3. Go to the MANAGEMENT MENU and select VOLUME DISCOUNTS.Work with this program and get familiar with it.
  4. Log Off when finished.

Questions and Answers

If you have any questions or need support, please contact us at Support@Floralcomputer.com or call 727-483-5306for assistance.

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