B-to-B Cataloging An Introduction to Merchandise Analysis
Contribution to overhead: From your net contribution number, subtract your average cost of fulfillment. For most companies, this number runs from 10 percent to 12 percent of gross sales. Use an average in this range if you're not sure of your company's number.
Profit and loss (P&L): From your contribution to overhead number, subtract your average overhead expense. Your overhead expense usually will range from 8 percent to 15 percent of gross sales. (Be sure not to double count your creative expense if you've already included it in promotion.) Your P&L number tells you how much profit you made on each product.
Based on your P&L, you'll have an excellent handle on how each category, product and ultimately the entire catalog performs.
With Excel, you can run many versions of the same squinch report. Using the sort feature, you easily can group your categories and sort the product within those categories based on their profit. This type of category sort is one of the most effective uses of a squinch report.
As for sorting by vendor, if you've never done this before, you could be in for several surprises. It's not uncommon for several vendors to produce no positive contribution! If this is the case, run some what-if scenarios to determine what margin you need on those vendors' products.
Knowing exactly what margin you need is a powerful negotiating tool with vendors. In a situation like this, you have little to lose. The products already are losing money, so they would have to be cut.
On the other hand, which vendors are producing the most contribution? It's likely you're spending a lot of money with those vendors on your product purchases. Can you use that volume of business to negotiate better prices?
For a quick price-point analysis, calculate each category's average price sold for products, and compare it to the category's average price offered. Are customers comfortable buying higher or lower priced merchandise than what you are offering? Use that information to guide future product development and selection.