Understanding default cost and unit cost
Understanding how Lightspeed Retail uses default vs. unit costs will help you harness the power of the Margins Per Line report, which shows the total, cost, profit, and margin for every sales line.
By knowing your retail margin you can find out which items sell quickly, and then research and purchase those items at a lower cost. This will boost your margin and profit. You can also find slow moving items and discontinue them, or lower their prices so they finally depart your shelves.
Keep in mind that margin doesn’t account for all costs such as employee costs and rent.
Avoid adding items to your inventory without an associated cost, as they will show as a 100% margin. This will give you an inaccurate margin total.
Default cost is used as the default item cost when added to a purchase order or auto-added to inventory. This value does not calculate your margin.
Unit Cost is used to calculate margin. In Lightspeed Retail, an item’s margin is calculated using the sales price and associated unit cost. You can see this information by going to Inventory > Item Search selecting an item and in the left menu clicking Inventory. You can correct old unit costs through sales reports or Item > History.
Unit cost is generated when inventory is added, usually by:
- checking in a purchase order with the items associated cost.
- creating or importing a new item and adding inventory (using Default Cost).
- adding inventory manually to an item with a unit cost.
Understanding margin and markup
Markup is a percentage of the cost of a product added to the cost to make the retail sale value. To get your retail price for an item you multiply the cost by the markup then add that amount to the cost.
Example of a markup calculation:
R = Retail Price
MU = Markup
C = Cost
(C * MU) + C = R
($4 * 0.30) + $4 = $5.2
Margin is the percentage profit you make on a product. To get your retail price from your margin, you divide your cost by one minus your margin percentage. In the example margin calculation the retail price is the same used in the markup calculation but the profit margin is a different number from the markup. In the example margin calculation the retailer makes a 23% profit margin over cost selling their item for $5.20 (A markup of 30 percent). In other words, 23 percent of the retail price goes towards profit.
Example of a margin calculation:
MA = Margin
C / ( 1 - MA ) = R
$4 / ( 1 - .2308 ) = $5.2