Set the decision boundary before using the numbers
Inputs and records to align
- One store, period, currency and tax basis. (not complete)
- Net sales after discounts, returns and markdowns. (not complete)
- Product cost and included selling cost by SKU or category. (not complete)
- Opening, receipts, transfers, shrinkage and closing inventory on one valuation and unit basis. (not complete)
- Labour, occupancy and other operating costs for the same period. (not complete)
- Comparable floor-space, capacity or traffic evidence only when the decision uses it. (not complete)
Build one transparent decision model
Store operating profit = net sales - product cost - variable selling cost - labour - occupancy - other operating cost
- net sales
- Recorded store revenue after included discounts and returns (CU per period) — reconciled point-of-sale records
- product and variable selling cost
- Cost layers that follow the sold SKU or order on the declared boundary (CU per period) — inventory, purchase and channel records
- labour, occupancy and other operating cost
- Period costs required to operate the selected location (CU per period) — ledger, payroll and lease records
Track inventory cash and accounting cost separately. Stock purchased in the period is not automatically the product cost of items sold in that period.
- Reconcile store net sales and product cost for one period.
- Rank SKU or category contribution without using revenue alone.
- Separate markdown, shrinkage and stock availability effects.
- Subtract labour, occupancy and other period costs once.
- Map inventory cash commitments beside the profit bridge.
- Choose the next tool based on whether the constraint is product, stock, space or period cost.
Worked example: bridge a store period
Invented period: 80,000 CU net sales, 42,000 product and variable selling cost, 14,000 labour, 9,000 occupancy and 8,000 other operating cost.
| Line | Calculation | CU |
|---|---|---|
| Product contribution | 80,000 - 42,000 | 38,000 |
| After labour | 38,000 - 14,000 | 24,000 |
| After occupancy | 24,000 - 9,000 | 15,000 |
| Store operating profit | 15,000 - 8,000 | 7,000 |
| Case | Changed input | Result | Decision signal |
|---|---|---|---|
| Markdown pressure | Net sales lower by 6,000 | 1,000 | Review SKU and markdown action |
| Base | Entered period bridge | 7,000 | Validate stock and cash |
| Higher occupancy | Occupancy +4,000 | 3,000 | Test location recovery |
Test the stock-economics triangle separately
| Test | Unit and period | Evidence question | Narrower owner |
|---|---|---|---|
| Contribution per unit | CU per retained unit sold | Does the SKU retain contribution after its named variable costs? | SKU Contribution Ranking |
| Stock time and cash exposure | Units and CU across one stock horizon | How long and how much cash remain committed before sale or exit? | Inventory-turn and markdown decisions |
| Occupancy recovery | CU per store period and required occupied capacity | Can the entered contribution and capacity recover the location cost? | Occupancy Break-even |
Route to the calculation owner
- SKU Contribution Ranking Planner
Rank SKUs by retained contribution after returns
- Occupancy Break-even Planner
Find the occupied-capacity threshold required to cover period fixed cost
Review the operational trade-offs before acting
- Using purchases as cost of goods sold without reconciliation.
- Treating gross margin as store operating profit.
- Ranking categories by sales while ignoring markdown and shrinkage.
- Calling high inventory turn proof of adequate availability.
- Allocating occupancy arbitrarily to force a SKU verdict.
- Combining inventory cash committed with final economic loss.
Decision questions
- Which retail metric should lead the review?
- Use the metric closest to the decision: SKU contribution for assortment, markdown recovery for clearance, inventory availability for stock and occupancy break-even for the location.
- Does a store with positive gross margin make money?
- Not necessarily. Product contribution must recover labour, occupancy and other operating costs, and cash timing remains separate.
Sources and methodology
- SKU Contribution Ranking methodology — Margin101: Product-level contribution and ranking boundary.
- Occupancy Break-Even methodology — Margin101: Location period-cost recovery mechanics.
Test the editable scenario
- SKU Contribution Ranking Planner
Rank SKUs by retained contribution after returns
- Retail Markdown Profitability & Recovery Planner
Choose markdown depth and sell-through while recovering inventory cash
- Inventory Turnover Planner
Measure inventory turnover and target working-capital change
- Occupancy Break-even Planner
Find the occupied-capacity threshold required to cover period fixed cost