Author: lapaasindia

People need to understand the product wise profitability not only for which product is profitable, but which product as sold to which customer and delivered to which locations for those customers.

Product-wise profitability affects the most out when you decide you are finding the best product out of your other product. 

Anyone uses this to determine the profit of that particular product he/she was selling.

What’s in it

What is Product Wise Profitability?

Product profitability helps to determine the profit of the product you sell in the market.

You might be thinking why we should evaluate the profit while we already had our total revenue, right?

Because the revenue we get is pointless if we get no profit on the products that we sell in the market.

Just think for a minute that How do you know which product is profitable or which one isn’t?

You can double down the hustle on that particular product to get the best possible money into your bank account.

So we are going to walk through you to all about determining the product wise profitability.

Before that, consider a few things whenever you are learning the product wise profitability not necessarily for the company, but for each individual.

Now, although the examples that I am going to show you are only for products and you can very easily replace that with service as well, so this could be the leverage you know the product or services.

First off a few things to consider: you are determining the product wise profitability.

Of course, you not only need something that the price and the cost, the unit cost, the number of sales.

But all of this is to determine the characteristics like  your revenues, COGS, profit and loss.

You’ll also need to consider other things like marketing cost and sales cost, so are you going to put substantial marketing costs and large sales cost into something you might have a low margin on?

Yes, that would be a nice idea because you make them harmful.

As a result, this allows you to compare all of the sides of your products by side by side!!!.

Take into account marketing, account sales, account your margins, and all of that and again, you could do this with services as well.

Product Profitability Templates

As you have already seen above the graph the cost of good sold in your unit sales

And you’ll see here along each axis of your product names, product one to product 12 in the COGS graph and on the unit sales.

And you can see it correlates with products on the 12th product, but you are not limited to the 12 products or 12 services.

You could come on the next line and add another product in the cogs or the in the sales graph.

There in the data, you could have a number of things like price to unit cost, etc., 

So now you can add up another product. Let’s say we have shoes as product 13, which you can use as an example.

We are selling shoes and the price of those shoes are 50 bucks.

The unit cost let’s say 25 bucks and the numbers that we sell let’s say 500 units.

Here what we are going to do is just put the marketing cost.

If this cost is associated with the promotions of that product, we put it inside of our data.

Marketing Cost

Let’s assume we have the marketing cost of 4000 bucks.

The additional cost for the employees who push the product to sell into the market or any sales cost. 

For sales cost, we take 1000 bucks, and now what you need to make a list with this information.

To understand the above things, we will use another example of product X and Product Z.

So, these are the two goods that you sell each month, but that doesn’t mean that the best selling product is the one which is the most profitable.

Suppose you sell 100 units of product X each month, and this is the best selling product.

But, the cost of the product with shipment is 10 bucks each.

You sell this on the shop for 15 bucks to the customers/

The cost for 100 units * 10 bucks= 1000 bucks (total you pay for the product to the wholesaler)

You sell this product for 15 bucks * 100 units = 1500 bucks

This is the amount you get at the end of the month after selling that product

But the profit on the product should be

1500 bucks – 1000 bucks = 500 bucks of profit on that particular product.

And if you sell 50 units of product Z each month,

The cost of the product with shipment is 10 bucks each.

And you sell this on the shop for 20 bucks to the customers.

The cost for 50 units * 10 bucks = 500 bucks (total you pay for the product to the wholesaler)

And you sell this product for 20 bucks * 50 units = 1000 bucks the amount you get at month-end after selling that product, but the profit on the product should like

1000 bucks – 500 bucks = 500 bucks of profit on that particular product.

So this shows that you are getting the same amount of profit to the product by spending less on the inventory on the product Z, and if you increase to the level at the Product X units in your stock, then the profit will get double.

I am telling you that the best selling product is the product that gives the most profit into your bank account.

And to find the per-unit amount of product X then divide the total number of Units with product profitability you find:

500 bucks of product wise profitability / 100 units = 5 bucks per unit.

And to find the per-unit amount of product Z then divide the total number of Units with product profitability you find:

500 bucks of product wise profitability / 50 units = 10 bucks per unit.

Conclusion

So it’s the unique intersection of a particular product delivered to a specific customer’s location. Try to understand as if like I am having to retail in the Delhi Connaught place.

The personnel, the trucking, the rules on what hours I can get into the Delhi, all of which are quite different then if

I am delivering to the warehouse in Noida or Gurugram, which is the view of profitability that the customers or the user of the product or the service need to understand. 

“That’s the level where you need to make a decision of profit or loss by calculating product wise profitability to that product delivered to that location.  

FAQs

Listening to startup ideas is mind-blowing undoubtedly. If we add motivation, it becomes exhilarating. According to me, bootstrapping in business is the best way to start.

Implementing these into your actions can be life-changing for anyone who is working hard and also being persistent.

May be you can build the next Amazon, YouTube or Instagram.

 A millionaire by 27 and billionaire by 33. Who don’t wanna think like this making up this stuff in our head is great at least I feel it. It excites me and gives me goosebumps.

So you must have heard about pulling off once on bootstrap. Even if you haven’t about, it doesn’t matter.

 Bootstrapping has been originated from this phrase. Bootstrapping is all about pulling something unexpected.

Basically, if I have to define bootstrapping in business, I would say setting up a company or raise a company with your own savings expenses with a bit of luck, hard work, or maybe a little extra help. 

Bootstrapping in business is especially about growing companies by self or borrowing money others and managing profit and funds at the same time.

Let’s pull up one’s own bootstrap.

What’s in this-

Understanding Bootstrapping in Business 

If anyone is starting a business, he must have skills for bootstrapping.

It’s not the easiest way to go, but it’s a relatively easy way to start rather than choosing other options.

There is a possibility that you will lose the money or your savings on equipment and investments for being native. But it’s not all.

 It offers a lot much. It is a constructive as well as an economical way to keep the cash coming. Bootstrapping in business is all about leveraging resources while simultaneously maintaining the cash flow and managing profits and bills. 

Bootstrapping is the river you have got to swim or sink. You paddle hard, or you fall. Although many successful businesses started with bootstrapping. 

If I take an instance, see it as a housewife where the cash flow or savings is the husband’s part of the salary, and the wife manages all the resources like food staples essentials at the same time she is saving and an emergency fund in the almirah. Sometimes limited resources or equipment can be a pain in a butt.

How to Get Started with Bootstrapping? 

If you are a beginner or new on the market, then you must speak it going with your post. I mean, let’s just be real.

 A 9 to 5 job gives us a lot, then we think. It helps us develop your behavior towards people and your limit to get going or concentration power. Moreover, you are getting paid for learning all this to gain experience. 

I am going to say that when you bootstrap your business, there must be cash flow, and you must not just leave that.

It is one of the resources that you can use in your side hustle. If you are not working or you are a student, then Hakuna Matata.

You got to share the content with others. Let people know and also take their feedback about the content.

Always chase the problems. I believe facing challenges is the best way to progress. For instance,

 Just watch Elon Musk. Solving the problem is the key passion and also the icing on the cake.

So these were kind of motivational ways.

Now let’s move onto the realistic ways and more practical ways that have already been tested by several other entrepreneurs.

Credit Exchange

By changing credit, you can make most of your resources available for you but not for long. Initially, suppliers might want the cash on delivery until you have gained trust over them by paying or showing them that you can pay bills punctually

Letter of Credit (LC)

If the buyer or customer can provide you a letter of credit, it would be a great help for financing. Let’s assume you open up a business manufacturing factory bottle. A large corporation is placing the order. Now, this supplier that will provide you the material is in another country.

In this case, you will get an LC from the customer about when an order has to have arrived and about the material. It’s a security or receives the letter.

With the help of Equity

If you want a place where you can control your setup, you will need a lot of money, but bad down paint state for longer like 20 to 30 years you are good to go. 

Stick with the apartment less will be your interest rate, and more will be equity. With the help of equity, you can refinance or amend your interest rates.

Leasing

It’s the best way to avoid the purchase of high ticket equipment our resources. Pleasing basically means paying for the particular part that you are using rather than paying for the whole.

For example, if you need any tool from the inventory from rather than purchasing the whole inventory. You can get the tool and pay for that.

Examples of Bootstrapping in Business 

Constructing a solid base the business takes time. A lot of bootstrap companies have achieved the feat by introducing layer absolute gem products and services.

There are some examples of bootstrapped companies.

GoPro

Literally, if there were a number one on the list for bootstrapping in business, it would definitely be a GoPro.

GoPro was known as woodman labs, which produce and manufacture high definition cameras. There design to film the user’s experience. 

These cameras world most liked by sportsholic as these cameras were made to record handless and ultra high definition footage. Woodman got the inspiration from the surfing trip 2002 Australia trying to capture the shots while surfing. 

But he wasn’t quite able to capture what he needed because of a lack of quality of camera and products. So he decided to design his product as a bootstrapper he bootstraps his company for 10 years until he accepted the investment from Foxconn of 200 million dollars. Change then company raised its tech and give the users high-quality cameras. 

Digging in a little more woodman used to sell shells belt and beads to earn the bootstrap cash. He designed his product with his hand due to a lack of digital knowledge.

GitHub

The interesting fact about this company is that it started as a side hustle turn on Saturdays and Sundays. Founder Tom Preston-Werner, Chris Wanstrath, and PJ Hyett bootstrap cash to get the domain. 

It was a big stage set up for the developers who have access to the social network. 2013 was a breakthrough year for GitHub as the hit 3 million marks.

After these, things changed pretty fast, as the founder gave complete focus to the project resigning to the day jobs and begin to invest time in their production customer feedback.

Spanx

Founder Sara Blakely came with the idea of brief slim sleek and comfortable undergarments for women.

Define brands that she had saved was bootstrap in a project back in 2000. She also got her idea

Patent

Now her network is near to a billion still owns all of it. These people become successful, not just because of dumb luck.

But, because of their product or sharp as a tack and they show patience to reach a milestone.

Pros and Cons of Bootstrapping in Business

Following are the pros and cons if you start and depend on bootstrapping in business-

Pros

Significant Focus

Unlike other startups bootstrapping doesn’t require to invest their thinking ability on how to handle the investors. Bootstrappers spend most of their time in improving their products. 

The only one they need to impress is the customers. You get to control how you make all the stuff you are going to sell or maintain. It could be anything. Pressure situations are ruled out, and you can better your progress without paying a hangman.

If you just borrow money from some external source, then you might have to work for others to satisfy the other people leaving your idea of product behind only to fulfill their needs. Your idea could be a winner.

 Also, when the clock of the money starts ticking that is being borrowed, it’s getting harder.

As you get closer to the deadline, the pressure keeps increasing, and you might lose control over things. To avoid this situation bootstrapping is the best way.

Expand your business:

Building something like Reliance a generation to generation company, you are going to need to put scrap business. 

The image will be hanging around you like a waiter for one asking for the bill at any moment to finish the meal. This can be avoided if you make your mean. My point is bootstrapping in business.

Spend precisely

Battery cost experience makes good habits in a good balance between the profit and expenses.in the wrong turn, you can get maximum results with minimum resources. It’s penny-pinch. If you slip away, you might get into trouble. Tu to avoid this bootstrap your business.

Bootstrap page doesn’t have to chase perfection. Instead of that, they run for progression. Perfecting products can be a real pain in a**. Most of the time, you might fail. Instead of that, you can make your product, ask for reviews and feedback and change. It’s like progress-feedback- change- repeat.

YouTube started as a dating website until the founder just posted a video and make it available for all kinds of uploads. You don’t know the destination, just trust the progress.

Cons

According to Forbes, 90% for startup fields and 75% of fields are due to running out of services cash and fulfilling the investor space.

Survival risk

Bootstrapping in business means you are on your own. For entire business responsibility. You make a profit you reinvest you are good.

But somehow, if you fail to make the profit, the cash flow might become negative. That would not feel a good consequence. You might drain away all the cash through one wrong investment.

You might have to spend from your pocket to the employees, maybe even from debt.

Social, Physical, and Financial Networking the value, insiders’ knowledge, the whereabouts that can be assaulted by networking, you might miss out on these as a massive help to your bootstrap business.

Being in my school, no was in front of a hardcore expert, is not a good scenario. Investors expert in a particular area has the upper hand.

Growing but like it trees

Bootstrapping means handling business with the limited promotion of limited network restricted cash, so there is a large probability to grow slow scale slow, which might sometimes take years.

Conclusion

So let’s wrap it UP fast.

Bootstrapping is the game of patience hard work management organization and waiting for a chance.

Bootstrapper versus others is like a race between the tortoise and the hare. Bootstrappers moving slowly but consistently with a lot of patience is finally paying off. Bootstrappers rise and grind all day.

Showing hustle loyalty towards themselves and their products can definitely give a rewarding end result.

Bootstrapping in business, one might need to play a lot of roles like program manager, cook organiser. It takes a lot of hard work has been hours and hours showing perseverance day to day.

It’s not easy to start, but it would not give peasing rewards if it were easy. Bootstrapping in business tells you to maximize your productivity with minimum assets.

FAQs

Consumer insight is essential for the company to survive against its competitors. The less the company can understand its consumer, the more difficult it becomes for them to survive in the market. 

In the end, consumers that generate demand, directly or indirectly, for all products and services.

For examples: 

• Food, shelter, and clothing
• Cars, bikes, laptops, etc
• Electricity, internet, and social media
• Food, shelter, and clothing
• Cars, bikes, laptops, etc
• Electricity, internet, and social media

And the farther you removed from the end consumer, the more important it is to understand the end-users.

What’s in it?

What is Consumer Insight?

A foundational principle in the marketing and customer values is that the customer value.

It is based on an in-depth and better understanding of customers.

So, we can also say that better customer insight.

Now the question arrives is, what is the customer insight, right? And how do we get it better at customer insight?

So, I think our customer insight as a fresh way of understanding customer needs, behaviour, and customer frustrations.

It can become the basis for a business opportunity. So the question is, What do I mean by not yet obvious to other people?

Sometimes, the insight is a way of looking that other people have not only seen, but considered counterintuitive.

You’d run in the opposite direction and that sometimes maybe insightful 

Examples of Consumer Insight

So let’s just understand it by the help of the examples:

If you were to locate a retail store, where do you want to put it? Stand to reason that you put it where there’s a lot of customers in the area decided first. 

Walmart Consumer Insight Example

At Walmart, Sam Walton says, what I’m going to do is put the vast stores in the middle of nowhere.

Now, what was his customer insight? He had understood that as the highway system had improved in the united states as a result of the Eisenhower highway bill,.

It is now more comfortable for the customer to travel long distances to go to a supermarket.

Also, it is cheaper now to ship your products to the store. He realized that if you build a vast store where there were fewer people, but if they were coming over from a much larger radius.

You had enough demand, and more importantly, they had no competition, so this was the foundation of Walmart.

Apple Inc. Consumer Insight Example

The one who used to work for the Apple Inc. told that when he was the product manager for the iMac they were first coming out with the iMac. They had everything locked and loaded.

They were ready to go the market once Steve Jobs called a meeting and said we’re going to do Four Colors.

All the left brain people in the audience were like “this is nuts.”

Now we’re going to increase our inventory, and we are going to create problems with forecasting.

We are going to delay the launch so what the big deal with colors is? And  Jobs said “Well, we are going to do four colors because colors are the way people express themselves.

It makes the computer more of a personal asset. It also reflects their identical personalities.”

And of course, I also think that the colors played a vital role in the success of the first iMac.

And we also recall their advertising tagline, which was “SORRY No Baige Think Different.”

It also became the cornerstone of their campaign again, but not obvious to people because it involves questioning conventional wisdom.

So the customer insight a sort of ideas on customers are that they will never come from quantitative market research, so don’t look them in your surveys.

Because customer insight involves going deep in building empathy with customers and trying to understand their point of view.

The qualitative research is the exploratory research of the empathic design where you really seek closeness with customers, and understand their thinking.

That will lead to better insight; it’s the notion of exploration as the notion of really using the eclectic method of trying to get closer to the customers.

Also, customer insight often comes from anomalies( it is a great way to begin to think about the idea), so what is an anomaly?

Kodak Consumer Insight Example

For instance, Kodak was entering the market for digital cameras, and they found an anomaly. The anomaly was that although the analog film then cameras in the home, 75% of the pictures were taken by the women because of one of the family’s memories keepers.

But in the digital camera, they found that there was less than a quarter what the pictures would be taken by women now why was that so?

So this was an anomaly as they dig deeper into what they discovered: women had three problems with digital cameras at first whenever I want to use it the battery is always dead,

And the second problem even if I can use it I don’t use it because it has a lot of buttons and too many features, it is too complicated.

And the third one even after I take the picture I don’t know what to do with them it’s too complicated to get them into the computer onto the internet.

So they simplified this entire process and came up with easy the natural concept of the easy share camera, the accessible share gallery, and that became the cornerstone of their success “The Ease of Use.”

Hence, the anomaly is an excellent place to start looking for customer insight.

Napster And Ipod Example

And also the customer insight sometimes comes from the intersection of clients. When I meet someone who was doing good in this sector, their idea was that if we look at the one trend which is personal music you know the walkman, of course, had been very successful and the other direction was digital music like Napster.

Now the conversion of these trends which is personal digital music should be the huge opportunity, but in fact, the market did not develop the way that it should have,

So that became the basis for apple investigation why is this the case and what they found there was that people want to take all their music with them in an unobtrusive way and they also wanted a simple way 

To actually download and use music legally, the three innovations they created were the size, and the storage which was 10 thousand songs. The third was an easy way for you to buy and make music legally, iTunes, and the rest is history.

Conclusion

So that’s the customer insights. They are penetrating the prominent and looking things differently.

They are really doing it by getting into the minds of the customers as well as head blenders.

Because as someone says about customer insight: “It’s about walking in the customer shoes, but first you have to take off yours.”

FAQs

by Team Lapaas | Aug 21, 2020, | Strategy | 0 comments

2 Minute Summary

COGS stands for Cost Of Goods Sold. It is the cost that a company pays to produce its product or service. All companies incur/bears the cost in the creation of their products. The labour, material, and operating costs, such as building rentals and utility expenses, contribute to the COGS calculation and the final product’s final price. Calculating the COGS (Cost Of Goods Sold) or the cogs formula for the services or the products you sell or manufacture can be very hard or complicated some times, RIGHT?  Basically, it all depends on the number of products as well as the rigidity or complexness of the manufacturing process. It becomes easier as you practice it, so keep practising and keep visiting our website for many more amazing and informative blogs. Full Detail in Blog.

Do you want to know what is cogs? and do you Want to know what is cogs mean? or do you Want to know how to do cogs calculation? Want to know why it is important for you? Want to know how it will help you grow your business?

Well, you got yourself at the most right place to get information about COGS.

If your business sells Services or product then, you need to know how to do COGS ( Cost of Good Sold) calculation. Basically, this calculation includes all the things involved in cost to make the sales. 

What’s in it for me?

1. What is COGS?
2.  COGS And Gross Profit
3.  Accounting Method of COGS
4. Conclusion
5. FAQs

What is COGS Meaning?

COGS stands for Cost Of Goods Sold. It is the cost that a company pays to produce its product or service. All companies incur/bears the cost in the creation of their products.

The labour, material, and operating costs, such as building rentals and utility expenses, contribute to the COGS calculation and the final product’s final price.

For example, Let’s say you are buying a smartphone, and the price of the smartphone is 1000 bucks. But, the part of the price consists of COGS which includes the following-

• The cost of the items used to make the smartphone such as processor, ram, battery, machines need to assemble the phone. Also, the electricity to run the whole plant.
• Labour’s salary to pack the cell phone all these costs associates with the actual creation of the product that includes in the COGS calculation.
• Transportation, advertisements or sales are not part of the COGS calculation.

To understand more clearly, let’s take a real-world example 

Which of the following companies do not have the cost of goods sold in their income statement?

1. Apple
2. Facebook
3. Patanjali
4. Pantaloons

If you say “Facebook” then yes!! You’re right because the COGS only applies to those enterprises that have something to sell like physical goods.

COGS And Gross Profit

Do you want to know how does Gross Profit related to the Cost Of Goods Sold? The big question right? So, to understand this, let me give you an example. 

Let’s say you are full of ideas, you like to invent stuff, and suddenly you have come up with the breakthrough product and got a prototype working 

However, your strength is really in designing, not manufacturing or selling.

So you get somebody else to do the manufacturing of your product for you. They produce goods according to your specifications, ship them, and you pay them the cash on delivery.

You also get somebody else to sell off the product to customers. You ship the goods to the retailer, but instead of retailer paying you instantly, you will receive the payment after 30 days.

This month, You buy 100 units at 80 bucks each and sell 50 units at 100 bucks each. So how much profit do you make? What do you think? Well, let us help you with the calculation.

See, you deliver and sell 50 units at 100 bucks each, so your revenue is 5000 bucks. The cost of sourcing(making) those 50 units that you have now sold is 50 units at 80 bucks each. So, your cost of goods sold is 4000 bucks. 

In short, you sell 50 units at 20 bucks margin per unit, So, you generate a profit of 1000 bucks. But wait, didn’t you buy 100 units and only self 50?

Yes! You haven’t sold those 50 units yet. So, it is still remaining at a value of 4000 bucks.

Wow, That means you still have a long way to go in this business.

Cost Of Goods Sold Formula [CoGS Formula]

Look at this another way of finding the same numbers by using CoGS Formula

It goes like this-

Beginning inventory ( which is ZERO in this case)+Purchases (this is 8000 bucks)–Ending inventory ( of 4000 bucks)= 4000 bucks (Which is the Cost Of Goods Sold)

The Important variables here are the value of the beginning of the inventory and the ending inventory Why?

Because, In the end, just remember one thing, when you have the Net sales of your business than just Deduct the COGS (Cost Of Goods Sold) and then you’ll have the Gross Profit. NET SALES – COGS = Gross Profit. 

Accounting Method of COGS

This is another way to do the COGS calculation, and the first method is LIFO, and the second one is FIFO.

LIFO stands for “Last In First Out”

and 

FIFO stands for “First In First Out”

Both LIFO and FIFO are the cost accounting Frictions that can lead to very different numbers of Cost Of Goods Sold and Gross Profit.

Let’s work through a visual example of FIFO and LIFO.

We will do the inventory accounting for a hypothetical company, Toy Giraffe INC. As the name suggests, this company buying and selling Giraffe toys. While reading the example, don’t break the flow and order of reading or else you may find it a bit confusing. We don’t want you to get confused, we care for you, so we request you to read this information with total attention.

First Quarter

In the first quarter of the year, toy giraffe inc is building up its inventory. In January, they buy 1000 units (packed in 2 boxes 50 each) at 5 bucks per unit. 

Suppose in February, 200 units (4 boxes of 50 each) at 6 bucks per unit.

And in March, another 100 units ( 2 boxes of 50 each) at 7 bucks per unit. The quarter 1 ending inventory is 400 units at a total purchase price of 2400 bucks, so on average 6 bucks per unit. In the warehouse, the company does not explicitly identify the boxes. They just stack them up on a big pile(like a big big pile).

For accounting and inventory valuation purposes, the company does keep track of the timing of the buys as well as the unit cost.(Irresponsible company, right?)

Second Quarter

Then we go to April, the ending inventory of Q1 is the beginning inventory of Q2. The visual presentation if the FIFO inventory flow is at the top, LIFO at the bottom.

They sold the first box of toy Giraffes (50 units) in April with FIFO (First In First Out). We will assume that they sold the oldest inventory first: one of the boxes purchased in January. 

But with LIFO (Last In First Out), We assume that they sold the newest inventory first: one of the boxes purchased in March.

Two boxes of toy Giraffe are sold in May.

With FIFO, we assume that they sold the oldest inventory first: the last of the boxes purchased in January and one of the boxes brought in February.

But with LIFO, we assume that they sold the newest inventory first: the last of the boxes purchased in March and one of the boxes brought in February.

Four boxes of Giraffe are sold in June.

With FIFO, we assume that they sold the oldest inventory first: the remaining three boxes are brought in February, and one box is purchased in March.

What stays in inventory at the quarter-end under FIFO is one box they purchased in March. But with LIFO, we assume that the newest inventory gets sold first: the remaining three boxes brought in February and the one box purchased in January.

What stays in inventory at the quarter-end under LIFO is one box purchased in January. I’m hoping that you have understood it correctly, and if not, kindly just read it again with a little more attention. I’m pretty sure that you will get the point for sure.

Conclusion

Calculating the COGS (Cost Of Goods Sold) or the cogs formula for the services or the products you sell or manufacture can be very hard or complicated some times, RIGHT?  Basically, it all depends on the number of products as well as the rigidity or complexness of the manufacturing process.

It becomes easier as you practice it, so keep practising and keep visiting our website for many more amazing and informative blogs.

We hope that you now got the actual idea of what cogs is, what is cogs calculation, what is cogs meaning and all the accounting methods for cogs calculation. But if you still have any doubts left, don’t worry, we got your back!

Go through the below FAQ section to clear each and every doubt of yours regarding cogs.

FAQs

1. What is the COGS formula?

There are three steps to find out the COGS but there is another way also and that is the putting formula into the figures.
The formula for the COGS Calculation ( Cost Of Goods Sold) is 
Starting inventory + Purchases – Ending inventory = COGS ( Cost Of Goods Sold).

• How do you calculate the Cost Of Goods Sold(cogs) per unit?

Let’s say you have $20,000 in Cost Of Good Sold, which goes to the income statement. To calculate the COGS per unit, divide the total cost by the units sold. Let’s say you have a total cost of $20,000, and you have sold the 4000 units at $3 (hypothetically). What you need to do is $3 ($20,000 / 4000 units), so the answer will be the COST per unit. 

3. How do you find the average COGS?

To find the average COGS, you take the opening inventory balance as well as the purchases that you have done in a period of time to find the average cost. The average price per unit is used to find the COGS and the Closing Inventory Balance.

• How to calculate COGS calculation from gross margin?

If you want to find the gross margin, just remember Net sales – COGS = Gross profit. Now, what you need to do is ( Net sales – COGS ) / Total Revenue. And to find margin (Total Revenue – COGS) / Total Revenue x 100 

• How to calculate the cost of goods sold(cogs) from the income statement?

First, you need to know the COGS formula COGS = beginning inventory + purchases – ending inventory
Gross income = gross revenue – cogs and then NET income = revenue – cogs – expenses.

• Cost Of Goods Sold formula in excel? 

The COGS formula COGS = beginning inventory + purchases – ending inventory
Let’s say beginning inventory = 9000, purchases = 2000 and the ending inventory is 8000
So COGS = 9000+2000-8000 = 3000
The cost of goods sold will be 3000.

• What is the difference between COGS and operating expenses?

Operating expense is the expanse cost that is not included in the price of goods sold cogs and on the other hand cogs( Cost Of Goods Sold) labour, Material and the operating cost such as building rentals and utility expenses contribute to the COGS calculation.

If you are a businessman or working for a business, you have heard about the term supply chain management in manufacturing or wholesale business and retail management in retail business.

So, You might be manufacturing a product, selling a ready-made product or providing any kind of service to the customers.

If you are a seller and earn profit margin upon your sales, you are working for product industry and if you are offering services and charge money for that, then you belong to the service industry.

Contents-

1. Types of Business

Generally, there are many types of businesses that belong to various industries, but if we talk about the target audience, there are of two types of businesses-

• B2B Business
• B2C Business

B2B Business- If you are selling a product to someone who against sells that product forward, it means you are dealing with a business. This is called B2B business model i.e. business to business.

So, Mostly, This type of businessman is a wholesaler that sells products in large quantity. Hence, The sales are done on high volume and the profit margin is low.

But even if you are selling a less quantity of products to other business, then it is also B2B business.

B2C Business- If the customer is purchasing a product for his own use, then he is actually a consumer. So, if you sell a product to someone who consumes it, then you are working on B2C business model i.e. business to consumer.

“Always remember this, a customer is the one who purchases your product, and a consumer is a final customer that consumes or uses your product.”

Generally, B2C businesses are retail stores that are present near your locations and the local markets of your city. Every store sells the products or service of a particular niche and fulfils different types of needs.

What is Retail?

The term ‘retail’ is comes from a French word ‘retaillier’ which means ‘to cut into pieces’ or ‘to break bulk’.

“Retailing includes all the activities involved in selling goods or services to the final customers for personal, non-business use”. – Philip Kotler

When a person either manufacturer or a reseller, sells goods in bulk, then it is wholesale. Whereas a person who sells goods to the customer who doesn’t purchase it to sell, but for personal use, then it is a retail business. 

The seller is called a retailer and sells in a limited quantity demanded by the customer. The consumer purchases a product from the retailer highest possible price of that product i.e. MRP (Maximum Retail Price).

Generally, a retailer can be a normal shopkeeper or an owner of a big retail store chain. A small retailer offers the goods on MRP whereas the large retail chain players can provide discounts due to overall high sales.

Types of Retailing

Ownership Based Retailing

1. Independent Retailer

An independent retailer is generally a local shop owner or a street-side vendor that operates his business with a single outlet. He captures the customers of nearby locations.

2. Chain Stores

When a business has two or more branches under single ownership, then it is called a chain store. These stores can be present in different locations or even different cities and offer the same line-up of products in every outlet.

Example- Raymonds, Bata, Westside

3. Franchise Stores

Franchise business is an agreement between an established brand that is the franchisor and the other person is a franchisee.

In this business model the franchisor demands a royalty fee for his brand name from the franchisee and charges effect percentage of amount from the monthly sales.

Example- Dominos, KFC, Subway

4. Leased Department Store

This type of business can also be called shop-in-shop or store-in-store. The owner is a lessor that provides the space to a lessee. The companies adopted this process to spread the awareness of their brand.

5. Consumer Co-operatives Stores

These are the stores that are owned by consumers themselves. A group of consumers can identify a gap in the fulfilment of their needs and start a store mutually with profit-sharing.

Example- ‘Apna Bazaar’ in Mumbai, ‘Super Bazaar’ in Delhi

Merchandise Based Retailing

1. Departmental Store

A departmental store is a large retail store that provides a wide line-up of products to the customers under one roof. Generally, they have separate sections for different categories of products.

The products they sell are usually Electronic Appliances, Apparels, Jewellery & Accessories, Footwears etc. Since the products are properly arranged, the customer shopping experience also becomes good.

Example- Pantaloons, Max, Shoppers Stop

2. Convenience Store

These are the small retail shops that are located near a residential area to fulfil the demands of people. The retailers of a convenience store purchase selected goods in a very limited quantity depending on the basic needs of the customers of that locality.

3. Speciality Store

Basically, These types of stores don’t have a wide range of products. They focus on a particular niche such as sports products, fitness products, electronic products. They have a very selective and refined customer base and provide a variety in model, size, colours etc.

Example- Nike, Levi’s

4. Super Market

Supermarkets are basically self-service stores that provide groceries and other household items that are necessary for the customers. The products are properly organised into different sections

The customer can pick the products of their choice in their cart and purchase them by paying the amount at the billing counter.

Example- Reliance Fresh, V Mart

5. Discount Store

A discount store sells the standard merchandise at very low prices. Let me tell you that the quality of the product is not compromised. In fact, they operate on a high volume of sales with a low-profit margin.

Example- Walmart

6. Hypermarket or Superstore

If we combine a supermarket with a departmental store, it becomes a hypermarket. The term “hypermarket “was originated in France. At many places, people call it a superstore.

A hypermarket is one of the best options for the people to complete their shopping in one go at a single place.

Example- Big Bazaar, D Mart, Hypercity

7. Catalogue Store

You have visited many retail stores where the seller shows you catalogues offer a wide range of products. You can select any of the product of your choice.

The retailer orders it to the manufacturer or supplier and finally delivers it to you. This type of stores are catalogue stores.

Non-Store Based Retailing

The retail business that does not operate in any physical store comes under non-store retailing. You can also call it online retailing or ecommerce.

Here the retailer can be in direct contact with the consumer at the workplace as well as at home.

Example- Postal Orders, Telemarketing, Automated Vending Machines

Service Based Retailing

When a person does not sell any product to the customer but provides service and charges and amount for that, then this process comes under service-based retailing.

Example- Car Rentals, Appliance Repairing, Salon

2. What is Retail Management?

If we talk about the retail industry, it has two portions i.e. Unorganised sector and Organised sector.

Unorganised Sector- Basically, the unorganised retail sector contains small general stores, street-side vendors, and local retailers such as fruits and vegetable sellers.

These people don’t have much technical and financial knowledge about the retail industry. Most of the sellers are not even registered taxpayers.

Organised Sector- The organised retail sector contains a group or chain of stores with the proper distribution network.

It helps in increasing the work efficiency, minimising the cost and also generates more employment.

Retail Store Operations

All the activities that are necessary to create a well-structured business process as well as help to run a retail store with high efficiency, come under retail store operations.

Store Environment

Following are the points you should take care about your store environment-

1. Select a location that is easy to discover and reach for the customers.
2. The look and design of the store and also the signboard should be attractive enough to grab the attention of the customers.
3. Display merchandise and products outside your outlet so that the customer can easily make a decision to enter your store.
4. You should maintain the floor, interior, ambience, temperature and other physical conditions of your store.

Inventory Management

Following are the points you should take care of for stock management in your business-

1. Always keep a rough calculation of demand for different products that you sell. It helps you to maintain a wide range and predict your sales.
2. You should always balance the inventory and prevent understocking and overstocking. Because less stock cannot fulfil the demand and your running capital might get stuck due to overstock.
3. There should be enough space for the procurement of the stock.
4. It is very important to stay updated with the launch of new products from different brands.
5. Quality of the product you sell or the service you provide should never be compromised.
6. Always deal with the trusted suppliers that deliver your orders on time so that you don’t it have to face any shortage.

Staff Management

It is the employee of a company who can make it or break it. Following are the points you should take care about your workforce-

1. Whether more or less experienced, always hire skilled staff and never tolerate under-performing members.
2. Provide uniform to every staff member so that they can look more professional.
3. If an employee directly interacts with the customer, then make sure he is always well-groomed and have good communication skills.
4. The sales pitch of the employees should be convincing so that the customers agree to purchase the product they suggest.
5. Provide them training to improve their level and necessary updates in a regular interval of time.

Customer Experience

It is the key to build a loyal customer base in any business. Following are the points you should take care of to provide the best customer experience-

1. If you run a self-service store, keep the products in separate departments according to their category, size, colour, etc. so that the customers can easily find any product they need.
2. If you have employees to attend the customers, then they should assist them as soon as they enter the store.
3. Greet your customers while they enter or leave the store.
4. If you belong to the service industry, then the customer must be satisfied with your services.
5. Build up customer relationship with healthy conversations and give them a reason to become a repeat customer.

Payment Handling

It is one of the major important processes for any business to survive in the market. Following are the points you should take care of in cash handling-

1. Use the cash register counter to arrange the counter cash properly.
2. Provide the facility of cashless transactions with POS (Point of Sale) machines, UPI or any other digital payment method.
3. Hand over the authority to control cash to the trusted person only.
4. If you provide the credit facility to the customers, then make sure you can recover it on time.
5. Make a habit to track the cash flow of your store on a daily and monthly basis.

Shoplifting

Basically, shoplifting is a theft activity where the person pretends to be a customer and steals the goods from the store. Following are the points you should take care of to prevent these activities-

1. Make sure that all the products are properly arranged at their place.
2. Install mirrors and security camera in your store for the surveillance of all the activities.
3. Don’t allow the customers to take any kind of carry bags inside while entering the store.
4. Pay attention to everyone individually while attending more number of customers simultaneously.
5. Put anti-theft tags on your products, if possible.

Returns & Refunds

You may have to face it many times that due to any reason, the customer wants to return the product he purchased. Following are the points you should take care in these situations-

1. Use experiential marketing by letting the customers try the product before buying.
2. Honestly tell them the pros and cons of the product and let them decide whether it is suitable for them to buy.
3. Make your customer aware of your return policies before they purchase anything and always stick to it.
4. Misbehaving with the customer if they return any product it is not a sign of a good retailer. Handle them gently and leave a good impact.
5. If a customer returns a product, never Exchange with money. Ask them to select a replacement. It will balance your sale.

Retail Management Softwares

The best way to automate the operations of your store is the use of retail management software. There are many softwares available in the market.

You can purchase any of them according to your requirements. Following are the advantages of retail management software-

1. It helps to keep track of the inventory, sales, cash flow, staff attendance, etc.
2. You can analyse your top-selling and least-selling products of your store.
3. It becomes easy to save the contact details of the customers and target them for remarketing.
4. The monthly reports can help you to analyse the buying behaviour & pattern of the customers.
5. It saves your time of accounting and many calculations, so you can focus on other operations by utilising that time.

3. Retail Management Strategies

The retail industry is a very dynamic and competitive sector in the market. You have to apply various management strategies for the survival and growth of your retail business.

“You love it when you visit a store that somehow exceeds your expectations, and you hate it when a store inconveniences you, or gives you a hard time, or pretends you are invisible.” − Sam Walton (Founder, Walmart)

The retail management strategies include marketing, pricing of the product, discounts to attract the customers as well as other techniques that help to grow your business.

Retail Marketing

Whether you talk about the product selling or service providing, marketing is the crucial part to reach your target customers and make them aware about your business.

If you really want to grow your business properly, you must include a marketing budget for the promotion of your products or services.

You can reach your target audience advertisements by the means of newspaper, television, brochures, etc.

And if you want promotions through digital channel, then you can go for Search Engine Optimization, Social Media Marketing, Google Ads, YouTube Ads etc.

Effective Pricing

Everybody knows very well that India is a very price-sensitive market. It is one of the major key factors to gain more customers.

You should always keep in mind the price of your product based on your target audience.

The purchasing power of the customers play a very important role to decide the price segment that you should go for.

Discounts & Sale

The graph of sales never remains constant. It always keeps fluctuating as different months of the year are offseason for every business. But, discounts always attract a customer.

The retailer can provide offers and discounts in the offseason or announce sales on special occasions.

It often helps to balance the sales and sometimes gives you healthy profit where you play upon volume of sales instead of high margin per product.

Coupons & Freebies

There is an another marketing strategy to build a loyal customer base for long term. The retailer can provide coupons or freebies on large ticket size. It provokes the customers to purchase more products in one go.

But, make sure that you have done the current calculation before taking this kind of actions or else you may have to bear a huge loss.

Feedbacks Mechanism

A retailer always tries to provide best products and services to his customer. But, it is very important to analyse the customer experience.

So, If you are a retailer, you must have a feedback mechanism in your business to track the buying behaviour and response of the customers towards your products, brands, or services.

You can ask them to fill a feedback form or put a suggestion box at your workplace. Also, Check those feedback on a regular basis and always work on the provided suggestions improve yourself.

Digital Transformation

If you are still running your business in the old traditional methods, I recommend you to upgrade from physical retail to digital retail.

It is nothing so different. It brings you an online identity to showcase your business to the world. You just need a website according to your business requirements.

So, If you want to promote your business and boost your sales, you can go for digital marketing to acquire the customers that you cannot reach in offline retail.

For any Web Development or Digital Marketing Services, or Business Consultation, you can contact Lapaas to take your business to the next level.

4. Importance of Retail Management

Also, If you ask me why is retail management important? The answer is that it is one of the most important factors to run a retail business flawlessly.

You might know any person who started a business but, could not survive in the market for the long term. The reason behind this is lack of knowledge of business operations and their management.

So, It helps you to serve your customers in a proper manner and boost the customer satisfaction.

If you are sincerely following the retail management process, you will notice an increment in the productivity of your employees also..

5. How to Become an Effective Retail Manager?

Meanwhile, The retail industry is rapidly expanding every day and it is the fastest growing business in the whole world.

It generates employment for millions of people every year. Following are the qualities to become an effective retail manager-

1. Should be well-dressed and well-groomed
2. Strong communication skills
3. Ability to convince people
4. Expert in negotiation skills
5. Motivate and train employees to develop them For the short-term and long-term business strategy
6. Maintain the coordination inventory
7. Should be updated about competitors and market trends

6. Conclusion

Whether you have a small shop for a big store, if you are running a retail business, then retail management is must to run it efficiently.

Either you are a seller or a customer, everybody has 24 hours in a day and the time is very important for all. Suppose if a customer enters your store and you are unable to provide the products of his requirement in the desired time, you have wasted his time as well as yours this is not a good sign.

Firstly, it ruins the customer experience and the probability of converting them into a recurring customer decreases. Hence this is kind of a loss for the future of your business.

FAQs

by Team Lapaas | Aug 21, 2020, | Strategy | 0 comments

2 Minute Summary

Logistics is basically a process of transporting goods (either raw material or finished products) from one point to another point. The two major functions of logistics are transportation and warehousing. now you should also know what are the types of logistics. Following are the major types of logistics Like Inbound Logistics, Outbound Logistics, Reverse Logistics, Third-Party Logistics (3PL). Also, there are steps of processing Logistics Cycle which is Serving Customers, Product Selection, Quantification, Inventory Management, Logistics Management Information System. The efficiency in any work a major role whether it is logistics or any other service. Some of the key logistics efficiency metrics are the following like Warehouse Capacity, Shipping Time, Order Accuracy, On-Time Delivery, Transportation Cost, Damaged Products, Inventory Turnover Ratio. Full Detail in Blog.

Do you want to know what is logistics? So, Do you want to know what is logistics meaning? Do you want to know how to do logistics management? So, Do you want to learn how to do logistics tracking and how to make your business a successful logistics company? If yes, then you must read the whole blog written here.

So, Let’s know everything about the supply chain of products and their management.

Also, The person selling a product or offering a service is a seller or service provider, and the one who is purchasing the product or the service is the customer.

The end person who finally consumes the product is called a consumer. Also, The supply chain of a product ends here.

What is Logistics?

Logistics is basically a process of transporting goods (either raw material or finished products) from one point to another point. So, The two major functions of logistics are transportation and warehousing.

The operations include planning, implementing, and maintaining the transportation and storage of goods that include service as well as information of the initial point and the endpoint. (Easy to understand, right?)

Basically, it is an activity that comes under the supply chain system. If a person works in the field of logistics management, then we can call him a logistician.

Types of Logistics

Since you have known the meaning and definition, now you should also know what are the types of logistics. Following are the major types of logistics-

• Inbound Logistics
• Outbound Logistics
• Reverse Logistics
• Third-Party Logistics (3PL)

There are many more types apart from these also but the most used ones are these four.

Inbound Logistics

It is one of the primary types of Logistics. Basically, inbound logistics means transportation, storage, and the receiving of the incoming resources (such as raw material or other goods) that you require to manufacture a product.

Moreover, it can be the delivery of goods that you will procure in your inventory.

The below diagram shows the placement of inbound as well as outbound logistics in an organization. For example- If you are dealing in footwear, then the inbound logistics in your company will be the rubber for your shoes, the thread to be used for knitting the shoes, etc.

Outbound Logistics

Outbound logistics is a process of delivering the product to the customer on the committed time.

Customer satisfaction is the main objective here and the logisticians take care that the product should reach the customer safely in minimum cost

For example- If you are dealing in footwear, then the outbound logistics in your company will be the shipping of the final product which are shoes, sandals, slippers etc to your customers.

 Reverse Logistics

Reverse logistics is a process of transporting product from the end customer to the seller. It includes the collection, inspection, sorting, refurbishing android distribution.

You have undoubtedly faced it at least once that you have ordered a product online and it did not match your requirements. Then you raise a request for a replacement or refund regarding the product.

The company picks up that product from your address. So, the process of reaching the product from your side to the company is reverse logistics.

Third-Party Logistics (3PL)

The third-party logistics are focused only on the transportation of products from one end to another end and nothing else.

It doesn’t matter whether it’s a seller to consumer or consumer to the seller. They take the responsibility of delivering the products two right places at the right time.

It helps the businesses to focus on their primary operations instead of engaging their time in monitoring the delivery services.

 

Importance of Logistics

Whether you are a manufacturer or a reseller, you can reach to your customers by marketing techniques or by word of mouth. But, your product can reach them by a proper distribution network.

It depends on the seller whether they want to manage the delivery system by themselves or outsource the logistics to a reliable company to handle their supply chain management.

Many distributors, dealers and retailers depend on logistics for the delivery of products they require. The major responsibility of any logistics is to deliver the right product in the right quantity to the right customer at the right time.

Process of Logistics Cycle

Now let’s talk about the logistic cycle. Following are the processes involved in a logistic cycle-

• Serving Customers
• Product Selection
• Quantification
• Inventory Management
• Logistics Management Information System

 

Serving Customers

The main objective of the logistics is to serve the customers by providing them with the products they need. The logisticians continuously monitor the demand for the products in different locations.

Product Selection

Selection of the right products is very important in any logistics system. It directly impacts the supply chain system.

If you are a logistician, then it depends on you that which category products you want to move from one point to another point. It is essential to define this so that you can plan your transportation methods, your warehouse and your place of establishment accordingly.

Quantification

Quantification means the procurement or sourcing of the material from the manufacturer or the supplier. It focuses on the calculation of the estimate of the quantities.

You know that sometimes it happens that you get an unexpected demand for material or sometimes an order in large quantity. For this, either you have to import it or you have to procure it to get ready for fulfilling future demands.

Inventory Management

In the logistics management system, the role of inventory management is the storage and distribution of goods.

When the goods are procured in sufficient quantity, they are stored until a customer places a purchase request.

Logistics Management Information System

The logistics management system of the supply chain system runs on the communication between the sender, the supplier and the receiver.

It is very important to establish proper coordination among them to make the process smooth and free from errors.

This process is defined as the Logistics Management Information System (LMIS) that plays a significant role in the delivery of right products, in the right quantity, at the right place, on the right time.

Logistics Management

Basically, Logistics management is a process in the supply chain system that majorly focuses on moving goods to different locations in order to meet the requirements of the customers.

It is crucial to decide the amount of different products logistician needs to store. He can make a calculation on the basis of demands in the previous seasons.

Logistics Efficiency Metrics

Now you clearly know that logistics management is an essential activity that focuses on the efficiency and effectiveness of the daily operations.

The efficiency in any work a major role whether it is logistics or any other service. Some of the key logistics efficiency metrics are the following-

• Warehouse Capacity
• Shipping Time
• Order Accuracy
• On-Time Delivery
• Transportation Cost
• Damaged Products
• Inventory Turnover Ratio

Warehouse Capacity

The capacity of the warehouse is an important factor to monitor the inventory and calculate the logistics operations.

 

Shipping Time

When a customer places an order to you, then it is important that you ship the order as soon as possible and acknowledge the customer.

The speed of your response create a good impact on the customer and shows the agility of your service.

 

Order Accuracy

It is easy to calculate and maintain stocks in the warehouse. But, it needs extra efforts and extra focus to maintain the accuracy of the products.

The delivery of wrong products to any customer will lead to return them and please send the right ones. So, finally, it will cause a loss to the logistician.

On-Time Delivery

Whenever you accept an order from any customer, it is very important that you deliver it to them at the time that you committed.

The delay in delivery of the order ruins the customer experience. To maintain customer relationships, the delivery should be completed on time.

Transportation Cost

Main logistics make a mistake in calculating the right transportation cost. In order to increase the efficiency in your logistic service, you must choose the shortest path possible that will reduce the cost of the fuel.

Damaged Products

Sometimes it happens that the products reach to the customer in the damaged condition due to various reasons. Hence you should always define your terms and conditions to the customers.

Always define that if any product damages in the way and the customer receives it in that condition, then who will bear the loss regarding that damage.

Inventory Turnover Ratio

Inventory turnover ratio is the ratio that tells how many times the inventory sold in a particular time period.

It is also called stock turnover. You can easily calculate it by using the following formula-

Inventory Turnover = Cost of Goods Sold / Average Inventory

where Average Inventory = (Opening Inventory + Closing Inventory) / 2

 

Difference Between Logistics and Supply Chain

You can say that logistic is basically is a subset or a portion of the supply chain. Let’s understand the basic difference between them with the help of the following comparison table-

Criteria	Logistics	Supply Chain
Objective	Customer Satisfaction	Competitive Advantage
Concept	Evolved Earlier	Modern Concept
Number of Organizations	Single Organization Involved	Multiple Organization Involved
Process	Flow and Storage of Goods	Control and Management

Conclusion

If you imagine that a manufacturer or distributor is the heart, then the logistics are the veins that flow the blood and reach it to all the different parts of the body according to the requirements.

The efficiency of the delivery service depends on the vehicles and their drivers. Hence, if you are running or planning to start a logistics service, then you should remember the key metrics of logistics. 

FAQs

1. Which one is greater between the logistics system and supply chain system?

Basically, the Logistics system is a part of the supply chain system. So, we can see that the supply chain system is bigger between both.

2. How to start a logistics business?

To start a logistics business, you need to have your own vehicles and also your complete the licensing formalities required to start that business.

3. How to improve logistics management?

Logistics system includes many activities such as product selection, inventory management, transportation etc. All these activities should be executed in a balanced manner for proper logistics management.

FAQs

What is an online retail business? So, If you are from a commerce background, You might have heard many definitions about business and aware of physical retail and digital retail.

In brief, business is a process or activity of selling a product or providing a service to others and earn money in return. Also, The term business was derived from the word busy, which means doing something.

For instance, You have seen many kinds of businesses from different sectors in the market. But on the basis of operations, businesses have four broad categories-

• Manufacturing
• Wholesale
• Retail
• Service

1. What is Retail Business?

So, If we talk about a wholesale business, the businessman procures the products in bulk from the manufacturer or purchases them in a large quantity. They are called wholesalers.

The wholesalers sell those products to a distributor and the distributor resells them. Generally, the manufacturer, the wholesaler and distributor operate on a high volume of products with less profit margin

In the retail business, the person purchases the products in either small batches or very little quantity and sells them to the customers. So, Here the seller is a retailer and mostly, the customers are end customers. Hence we can call them consumers.

If there is no middle man in-between, then the wholesaler directly sells the products to the retailer and both of them get a bit more profit margin on every sale.

2. Types of Retail Business

Generally, there are two types of sectors in business on the basis of behavior that is Sales and Service. So, These sectors cover all the industries of various categories. Also, The retail business comes under the sales sector.

A retailer is the owner of a store that sells a variety of general products or have a range of products from a particular niche. There are following types of stores according to the nature of selling-

• Physical Retail Store
• Digital Retail Store
• Phygital Retail Store

2.1 Physical Retail Store

Physical retail stores are those retail outlets that have at least one physical location. Many people also address them as brick and mortar stores.

You can visit these stores to purchase any goods for your requirements. There can be a single outlet or a chain of physical retail stores at different locations. Following are the types of physical retail stores-

2.2 Digital Retail Store

There are many retail stores in the market today that does not exist physically, but selling a large range of products every day and earning and enough amount of profit.

These stores are digital retail stores, or you can say online retail stores. You don’t need to find them on any physical location. You can visit their website or an ecommerce platform to explore the range of products they have.

The sellers provide the reference images and the description of the products for the services they provide. You can select any product that you like and order it directly.

So, you don’t need to collect the product from anywhere. Online retailers are responsible for delivering the product to you. For this, they ask you to feel your contact and address details at the time of checkout.

You can perform an online transaction at the time of purchasing, or if the seller allows, you can pay the amount at the time of delivery of the product.

For Example – Amazon, Flipkart, Policybazaar

2.3 Phygital Retail Store

The term ‘Phygital’ is a combination of Physical + Digital. It means the phygital retail store are those that operate their retail business through both mediums, offline as well as an online retail store.

With the help of digital technology, the one who is already running a physical retail store can expand his business. Digital retail helps to reach more customers and boost sales to generate more revenue.

For  Example- Walmart

3. How Big is Retail Industry?

The retail industry is undoubtedly the largest employer in the whole world, whether a product-based or service-based business. The global retail market size is approx $21 trillion in 2020.

It represents 31% of the world’s GDP and has a growth rate of 3.8%. The marketers and economists have predicted a decline of 1% in the global market due to the economic slowdown caused by COVID-19.

It may fall from $21.8 trillion to $21.6 trillion by the end of the year 2020. But, it is supposed to recover with a growth of 5% from 2021 and reach $25 trillion in 2023.

Source: Businesswire

Top 10 Global Retailers of the World by Revenue

	Company	Country	Annual Revenue
1.	Walmart	USA	$517.7 billion
2.	Amazon	USA	$213.8 billion
3.	Costco	USA	$144.4 billion
4.	Schwarz	Germany	$130.4 billion
5.	Kroger	USA	$124.3 billion
6.	Walgreens	USA	$114.0 billion
7.	Aldi	Germany	$109.5 billion
8.	Home Depot	USA	$108.9 billion
9.	Carrefour	France	$101.1 billion
10.	JD.com	China	$94.4 billion

Source: Oberlo

Indian retail industry is actually one of the most dynamic industries in the world. These are few stats about the Indian retail industry-

• India ranked on 73rd position in the United Nations Conference on Trade and Development’s B2C ecommerce Index 2019.
• Indian retail industry is the world’s 5th largest retail market in the world and ranked 63 in World Bank’s Doing Business 2019.
• In FDI Confidence Index, India has a rank on 16th position.

4. Digital Transformation Trend

The simple definition of digital transformation is the integration of digital technology in any offline sector and bring it an online presence. Maximum businesses are ready to adopt the online business ecosystem.

This is the era of globalisation where the emerging technology has brought a drastic change in the offline retail business as well as the wholesale business, and also the service industry.

Artificial Intelligence, Machine learning, Data Science and Cloud Computing are the major technologies we are integrating into our businesses and obtaining great results.

4.1 Digital Transformation in Wholesale Business

When a wholesaler sells his products to other businesses, then it is called B2B Business (Business to Business). There are many companies that provided an online marketplace to bulk sellers and buyers.

The popular wholesale traders that operate through the online stores are following-

Alibaba

The largest B2B ecommerce marketplaces of the world is Alibaba Group, founded by Jack Ma in 1999 in China.

It was the biggest revolution in the industry that introduced took the online wholesale business to the next level.

In January 2018, Alibaba became the second Asian company to achieve the $500 billion valuation. Presently, it holds 6th position in the most valuable global brands.

eWorldTrade

It is a US-based online platform for B2B trading. The company was launched in 2006 and one of the fastest-growing B2B platform. It is currently serving more than 220 countries.

IndiaMart

If we talk about Indian marketplace, IndiaMart is the biggest online B2B platform. Dinesh Agarwal and Brijesh Agrawal, two cousins founded the IndiaMart in 1996.

It is an online directory that connects the manufacturers or suppliers to the wholesalers through the digital medium. It has more than 1.5 million trusted sellers on its platform.

Currently, IndiaMart is planning to generate Rs. 2,000 crore in revenue by the year 2020. The target is to generate 50% revenue from the SME businesses and the remaining 50% from its new initiative ‘Big Buyer-Big Supplier’.

Udaan

Amod Malviya, Vaibhav Gupta, and Sujeet Kumar are the former Flipkart employees that started Udaan in 2016. It is a Bangalore based B2B ecommerce company.

It connects manufacturers to the sellers and handles logistics and payments. Also, it offers credit lines to the small buyers and sellers to operate their business.

Udaan is one of the fastest unicorn (crossed $1 billion valuation) in the Indian startup ecosystem. At present, its market value is $2.7 billion.

4.2 Digital Transformation in Retail Business

The offline retail sector is the primary target of most of the businesses for physical to digital transformation. The reason is the annual growth of the global retail industry.

Food & grocery materials, FMCG products, apparel & fashion products, healthcare and pharmaceutical products, consumer electronics etc. are the forever in-demand products and have great potential for growth.

Today everyone has the ease to access the internet from anywhere. Hence, many people are adopting online shopping for their convenience instead of visiting the physical retail stores.

Lets talk about some some popular ecommerce companies that are growing their online business every day-

Amazon

Amazon was the first popular company that introduced the concept of ecommerce in the market.

Jeff Bezos started selling books on amazon.com and then expanded to sell electronics, apparel, fashion accessories, toys, personal care, etc.

Due to the continuous innovation in digital technology and the best customer service, Amazon became the second company with $1 trillion market cap and Jeff Bezos became the richest man in the world.

eBay

eBay was founded by Pierre Omidyar in 1995 with the name AuctionWeb. Basically, it is an online auction and shopping platform that allows B2C and C2C trading to be possible.

It is the second most popular global online marketplace for online shopping that is operating in more than 33 countries.

Flipkart

Flipkart is an Indian ecommerce company which was the initiative of Sachin Bansal and Binny Bansal, formerly worked at Amazon.

It became the most trusted Indian ecommerce startup and in 2014, the company acquired the online fashion retailer Myntra.

In 2019, the company launched a video streaming feature in its app. It was also a new step to enter into the field of digital content.

Flipkart also owns PhonePe which is a digital payment service. It made online transaction much safer, easier and flexible through UPI (Unified Payment Interface).

Walmart

Walmart is the world’s most valuable company in revenue that operates a chain of hypermarkets globally. It provides the products to its customers at the lowest price in the market.

The company operates on wholesale also but majorly focuses on retail business. In 2017, Walmart launched its online retail platform to compete with Amazon and eBay.

In 2018, Walmart acquired Flipkart for $16 billion which was the world’s largest ecommerce deal. Later in 2020, Flipkart acquired Walmart India’s wholesale business ‘Best Price’ to fight against the rivals Amazon and JioMart.

4.3 Digital Transformation in Service Industry

Talking about the offline market, all the service providers were running their business in the old tradition. Basically, the service industry was very unorganized.

The digital startups of India have organized this sector. Also, it provided a lot of convenience to the people as well as boosted the economy.

Following are the Indian startups that played a great role in the digital transformation of service business-

Byju’s

This is a Bangalore based Indian edtech company . Byju Raveendran launched it in 2011.

It provides online educational content for primary to higher secondary school students and many competitive exams.

Basically, the platform works on a freemium model. The registered users get free access to content for limited days and then they need a subscription to continue. 

Byju’s is a platform that introduced digital transformation in the education industry. It became the world’s most valuable edtech startup in 2019 and presently it has the valuation of $10.5 billion.

Ola Cabs

Ola is an online cab aggregator that made taxi rides seamless. Bhavish Aggarwal launched the app in 2010 offering online taxi rides in Mumbai. Presently, Ola is operating in over 250 cities.

It is one of the most innovative startup of India that made digital transformation possible in public transport. The company has created its brand image in such a way that taxi means Ola for us.

It also expanded in global markets such as Australia, New Zealand, UK and European countries. Presently, the valuation of the company is above $6.5 billion.

OYO Rooms

OYO Rooms is India’s largest hospitality chain that provides budget accommodation. Ritesh Agarwal, the founder of OYO firstly started Oravel Stays Pvt. Ltd. in 2012. Later, he transformed it into OYO Rooms in 2013.

The USP (Unique Selling Proposition) of this hospitality company that is allows you to book standard budget hotel rooms even if you are looking for urgent accomodations.

OYO has also expanded in US, UK, Japan, Indonesia, Brazil, Vietnam and many other countries. Presently, the company has a valuation of $10 billion and Ritesh Agarwal is the second youngest billionaire of the world.

Paytm

In India, the majority of people used to perform cash transactions for their business and their shopping. Paytm introduced fast and secure cashless transactions in the market.

The full name of Paytm is ‘Pay through mobile’ and it is the first popular digital payment platform of India. Its digital wallet provided the facility to send and receive money through mobile number only.

After demonetisation in 2016, it achieved rapid growth and made people comfortable for online transactions. It was India’s first payment app to cross 100 million app downloads.

Later, we got many new services with time such as mobile recharges, bill payments, movie tickets, train reservations, payments bank, UPI etc.

The current valuation of Paytm is $16 billion and it is planning to launch its IPO (Initial Public Offer) in 2022.

Zomato

Zomato was the favourite startup of every food lover. The IIT Delhi graduates, Deepinder Goyal and Pankaj Chaddah ‘Foodiebay’ in 2008. It was renamed to Zomato in 2010.

Firstly, it offers you to search for nearby restaurants with all necessary details to dine in. Secondly, it also allows you to order the food on their platform from the restaurant of your choice and deliver it to your doorstep.

Zomato has transformed the food delivery sector and raised a trend to order food online. Apart from India, Zomato is also serving 24 other countries.

Top 5 Global E-Commerce Markets by Revenue

1. China – $636.09 billion
2. USA – $504.58 billion
3. Japan – $104.04 billion
4. UK – $86.45 billion
5. Germany – $70.35 billion

Source: Statista

Top 5 Countries by CAGR Growth in E-Commerce 2018-2022

1. India – 19.8% CAGR
2. Malaysia 17.6% CAGR
3. Indonesia 16.6% CAGR
4. Philippines 15.2% CAGR
5. Vietnam 13.5% CAGR

CAGR basically stands for Compound Annual Growth Rate which is a geometric progression ratio of revenue of the initial and final year. It allows to calculate the rate of return for a particular time period.

Mathematical Formula to Calculate CAGR-

CAGR = (RL/RF) ^1/n – 1

where RL = Revenue of Last Year

RF = Revenue of First Year

5. Physical vs Digital Retail

	Criteria	Physical Store	Digital Store
1.	Location	Physically Present	Can Be Accessed Online
2.	Audience	Can Capture Limited Customers	Can Reach Global Customers
3.	Operations	To Manage at Workplace	Can be Operated Remotely
4.	Product Interaction	In-hand Experience	Images & Videos Only
5.	Transaction	Mostly Cash Payment	Cash and Online Payments
6.	Data Analysis	Complex	Automated
7.	Remarketing	Difficult	Easy

6. Future of Online Retailing

Online retailing or we can say eCommerce is one of the fastest-growing businesses in the world. After the State of Retailing Online Survey 2020, National Retail Federation stated that physical retail and digital retail business are merging with a rapid rate for a seamless shopping experience of the customers.

So, it is happening because the customers are using both offline and online mediums to purchase any product they need. Offline sales grew by 1.4% in 2019, while ecommerce grew by 8.1%.

Grocery is the largest sector in the retail industry that reported for 77% of the total sales of the industry.

“ The Indian online grocery market could exceed sales of $3 billion in 2020, a substantial growth 76% as compared to the previous year“. -Sanjiv Goenka (Spencer’s Retail Chairman).

Reliance Industries launched JioMart in December 2019 for online grocery delivery services. It will connect the local vendors with the customers and provide them an online platform to provide convenience and growth in their sales.

It is expected that JioMart will capture the largest market share of Indian online grocery as well as ecommerce market in future.

The total revenue of global online retail in 2019 was about $3.45 trillion. At the end of 2020,  it may cross $4 trillion and by 2021, it is expected to reach up to $4.88 trillion.

The ecommerce market revenue of India was around $33.3 billion in 2019. The expected ecommerce revenue of 2020 is $43.5 billion and can reach $66 billion in 2023.

Source: Statista

7. How to Start Online Retail Store – 7 Easy Steps

Whether you are already running an offline business, doing a job or you are planning to start a business with high growth and low investment, you can start an online business by the following steps-

1. Firstly, you have to decide whether it will be a general store that contains mixed products of all categories or you will target a particular niche. Research and select a profitable one.
2. Become a seller on Amazon, Flipkart, Snapdeal, IndiaMart, Udaan or any other trusted ecommerce platform or start Dropshipping with Shopify.
3. If you want a customized website according to the specific requirements of your business, then you can approach a freelancer on Fiverr, Upwork etc. or hire an agency.
4. The online stores don’t need high setup costs but, you have to to spend the amount in digital marketing to boost sales.
5. If you ship the products on your own, then you have to take care of packaging, logistics and other minor costs. Calculate the cost of every product by considering all the factors.
6. Since you will accept online payments, you need a GST registration number with the name of your business.
7. Make a strategy how you will manage the returns and refunds of the products with the customers.

You can also contact Lapaas to build your online presence and digital marketing services for your business.

7. Conclusion

Today we have a lot of digital facilities such as internet banking, online shopping, online bookings etc. that provide us convenience, save our time and help us to maintain our data efficiently.

BigBasket, CarDekho, CureFit, Delhivery, Hotstar, Lenskart, Meesho, PharmEasy, Quikr, Swiggy,

Due to COVID-19 pandemic, there is a global economic slowdown. Almost every business has faced a decline in the curve of their growth.

But, it could not affect those businesses that operate online. This is a lesson that if possible, we should move from physical to digital business trend as soon as possible.

India is the fastest growing country in the filed of online shopping, with a growth rate of 19.8% every year. Hence the future of ecommerce business id bright in India.

One more advantage is that if you market your online store and brand properly, you can even export your products internationally.

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