PlanR Profit & Loss Report Functionality

This business scenario is presented to showcase a problem that most retailers face in their business at one point or another: Operations at loss. PlanR is a flexible, effective and easy-to-use tool to provide an on-point diagnosis and support decisions to solve the problem.

Via the Profit & Loss Report functionality, PlanR allows retailers to easily identify whether a location is profitable or not. It shows by various indicators the reasons why certain locations are at loss, and sets directions on how to find a turnaround path.

In consequence, decision makers can quickly evaluate their business results, define targets and action plans for each stakeholder of the organization such as Operation Managers, Marketing Heads, Finance Managers and Store Managers.

Impacts of the action plans can be monitored based on the needs of the decision makers on weekly, monthly or quarterly basis. Actual figures can be compared to last year results or to any previous periods, so that the users can keep track of the performance of their plans.

How can i define whether a store is at profit or at loss?

The Profit & Loss Report starts with calculating the total net sales. After deduction of COGS, various types of indirect costs and depreciation, EBIT (Earnings Before Interest and Taxes) for each location is determined. When EBIT is a positive number, it means that the store generates profit; when it is negative, it indicates that the store is operating at loss and should be reviewed, except in the case of new stores where the end of ROI (Return Of Investment) period is not yet achieved.

Why is a store at loss

Common factors include low net sales, low margin, high premises cost, high personnel cost, high capacity cost, active depreciation cost and high marketing costs. Typically the combination of any or all these factors can lead to a negative balance.

What can I do if a store is at loss?

Revise your promotion/markdown strategy

Make informed strategic pricing decisions supported by sales history, forecast and customer sensitivity to price change. The objective is to achieve the maximum final margin via higher sales volume. For example a Buy 2 Get 3 promotion will not only increase the average basket size but also generates more profit than offering 40% off for all products. In order to decide when to launch a promotion/markdown and the depth of the price cut that leads to a maximized final total margin, retailers need the ability to run simulations on all the possible combinations. And for the simulations to be successful, reliable sales history, accurate sales forecasting and robust customer behavior analysis are all indispensable.

Revise your margin elasticity

In case you believe that your net sales volume cannot be stretched further, one possible action is to increase your gross margin. By revising your sales price or optimizing your costs, you can create space for higher margin.

Keep your cost ratio healthy 

It is not always an easy task to know whether your costs are at a healthy level or not. It is possible to benchmark your cost ratio either to the industry levels, from one store to another, or to your market average. However, retailers never stop asking themselves whether their costs are too high or revenues too low.

PlanR can answer both these questions with the Cost to Net Sales ratio (%) KPIs. The Profit & Loss report functionality provides indicators based on personnel costs, premises costs, other capacity costs and marketing costs. Based on predefined thresholds, users are alerted by the system when costs are on a critical level. Actions plans can then be set up for each location and each concerned user role accordingly.

If you are interested in knowing more about the above or in exchanging ideas, please do not hesitate to contact the Blue Sky team!