Inventory Management: The Key to COGs
Much like in the world of retail, having a good grip on your inventory can make or break your center’s operations budget. One of the challenges we see our customers struggle with is that the person placing orders for the redemption area often isn’t the same person who is unpacking and putting it on the wall. Why is this a potential problem?
👉 Because when you order redemption products on our website you pay in dollars. When it arrives at your door, the value of the items has changed to tickets. This value perception shift between order placement and arrival often leads to the mistreatment and neglect of your redemption inventory.
Typically, our customers have an idea of what they want their redemption COGs to be (16–20%) but struggle to measure it. Setting and meeting COGs goals for every other area of your center is fairly straightforward. Redemption COGs get fuzzy because of the ticket rate exchange.
That’s why you and your redemption employees should have a good understanding of the ticket equation and how it affects your COGs. Here’s an Operational Toolkit that can help you with your ticket system. In it, you’ll find a Cost of Goods Calculator that shows cost and return on each item in your redemption program.
The COGs calculator considers all factors of your redemption COGs: your ticket markup, the subsequent ticket value rounding, your game payout percentage, etc. To use the calculator, download it from the toolkit and input your numbers into the pre-set formulas. Here’s a sneak peek 👇
Outside of the hard cost of the product itself, inaccurate inventory management wastes time and sets you back from your COGs goals. Have your employees ever scrambled to find a vendor to overnight an item because your POS system said you had 100 of something, but you actually only had 5? We know you have… we’ve taken those calls! 😉 Leave firefighting to the firefighters, folks. Here are some ways to prevent that fire from ever starting:
1 | Take a monthly physical inventory: Taking a physical inventory means physically taking count of all items in your redemption program. Start by doing this weekly for a month. Doing this allows you to get a good grip on issues that may be happening in your redemption operations (bad scan-outs, employees eating the candy, damage by customers, theft, etc.)
2 | Understand your inventory turnover: Knowing how quickly items are moving through your center is crucial to optimizing your COGs. It’s especially important to pay attention to trending items and when their redemption rates slow down. Knowing when an item is no longer performing well will allow you to adjust your reorder cadence — or discontinue that item in your center altogether. Conversely, you don’t want to be out of stock of an item that is performing at a high-velocity rate.
An article by The Balance Small Business says this about the importance of understanding inventory turn over:
“Retailers that handle inventory need to know how quickly their products sell and how often they need to replace them. Manufacturers and wholesalers keep track of their ‘turns’ and retailers should do the same. Manufacturers don’t want to be stuck with a lot of leftover inventory at the end of the season. The markdowns they take are just like the ones you do if you have leftover inventory.
Inventory turnover will help you understand, in concrete numbers, how your current inventory strategy is working. Are you stocking too much? Are you stocking too little? Are you stocking products that customers don’t want? Are you seeing great results from a recent change in product or marketing? ”
3 | Don’t forget the backroom inventory: Not counting your backroom inventory throws off COGs as well. The shelves in your redemption space may be empty, but you have 3 cases of what’s supposed to go there in your closet and don’t know it. This leads to your redemption center getting bogged down with more inventory than it can turn within a set financial period. Over-ordering often leads to reduced profit margins.
Let’s recap. Watch out for these offenders of proper COGs management👇
Scanning out products incorrectly (not having a standard in place for employees to adhere to when scanning out items at the counter). Not doing regular physical counts AND not updating your POS inventory to match the physical count.
Bad inventory management ties up cash. Even if you’re good at sticking to a redemption budget, having bad data to base your re-order decisions on does you no good. You could be spending too much money on one type of product when you actually need another. We see this most often in buying lots of high-end products and neglecting the real rock stars in the program.
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