|Tip of the Week||March 12, 2012
Volume: 2 | Issue: 11
How Currency Exchange, Markup and Short Discounts interface with pricing on your WebStore!
Last week we looked at how the currency exchange, markup and SD settings in your BookManager software affect the pricing and profit margin on goods you order and receive. What you may not know is that this same information is used on your WebStore in a variety of ways to generate online prices for items.
First, some basic math (we all groan loudly, but it’s important to understand how this all works):
The magic formula: Selling price = cost ÷ (100 - margin) ÷100.
In other words, if an item costs $5.00 and you want to make 40%:
$5.00 ÷ 60 = 0.83 ÷100 = $8.30.
Or, to eliminate some numbers, you can take the sell price and divide it by the “reverse” of the margin (moved over 2 decimal places). So:
$5.00 ÷ 0.60 (100 - 40 = 60, moved over 2 decimal spaces is 0.60) = $8.30.
If you wanted to make 30%, then the math is $5.00 ÷ 0.70 = $7.14 . And so on.
(Brain fried yet? But we’re just getting started!)
Now, let’s pretend that a customer wants to special order this item from you. In this case, you do not have the item in stock.
You may be saying to yourself, “$8.04 is a strange price for a book! Where is this price coming from?”
Notice that this item is only available from U.S. suppliers, meaning we are not getting any pricing or availability data from any Canadian supplier (or from your own inventory record for this item, because you do not have it in stock or on order.)
To generate a price for your customer, the WebStore will first look at your PubStock preferences to see which suppliers, out of those that are providing us data on the title, are set as Favorite or Normal in your PubStock file. In our case, BAKIL, BAKNV, IBCOR and IBCTN are our preferred suppliers.
Then, it will look at the exchange and markup set for these suppliers. In our example, U.S. suppliers have an exchange of 1.03 and markup of 1.15 set for them.
Next, it will establish a “marked up” or “inflated” Canadian cost by taking the $6.99 U.S. price minus 40% to get the $4.19 U.S. cost and then multiply by 1.15 (markup) to get an inflated Canadian cost of $4.82. Because the markup is set a few points above the exchange rate, this inflated cost builds in the exchange as well as a bit extra.
Math: $6.99 – 40% = $4.19 US cost.
Finally, to establish a sell price, it will then divide your inflated Canadian cost by the reverse of the profit margin you wish to get (usually 40%, so 0.60), which gets us to a selling price of $8.04.
Math: $4.82 “inflated” Canadian cost ÷ 0.60 = $8.04
In reality, the PM you will make is higher than 40% (46% actually) because of the item’s inflated Canadian cost. In other words, because we are using an inflated cost to calculate the PM rather than the real Canadian cost of $4.32 (which is the $4.19 U.S. cost x 1.03 exchange, and is what you will actually pay for the item), you are making a bit more profit in order to cover the costs of obtaining the item from the U.S.
You see some of this math when you click on the cart to order the item online:
Notice that the list of suppliers has been narrowed to only your Preferred suppliers and that the item’s cost in terms of exchange (not markup) has been calculated. Because the Sell Price has been calculated on the inflated cost (which you do not see here in the cart), the PM of 46% is higher than the 40% you might expect to see.
Wow, my brain hurts! The point of this lengthy explanation is that the price displayed to your customer for items available only from the U.S. (that you do not have in stock) is directly based on your exchange and markup settings. That’s why it is so very important to monitor the real-life exchange rate and keep your markup in line; hopefully, this also helps to explain why pricing on your site can sometimes be different than what you might expect to see.
Now, what about short discounts, you ask? Let’s look at another title.
Our Canadian supplier is offering the book at $64.95 less 20%. So where is that $86.60 price coming from?
In this example, we have our pricing strategy set to look for the lowest Canadian price first, from our preferred suppliers. LBC is set as a favorite, with a SD set to 40 (in other words, anytime there is a short discount you want to make 40% PM on items you buy from this supplier).
Under the hood, the WebStore is looking at the Canadian supplier price of $64.95, then establishing a Canadian cost by subtracting 20% (the discount) = $51.96. Then, using the SD minimum (40%), this cost is divided by the reverse of the desired PM (so 0.60) to reach the sell price of $86.60.
Math: $64.95 – 20% = $51.96 Canadian cost. $51.96 ÷ 0.60 = $86.60.
The SD is used online to protect your site from quoting unrealistically low prices on short discount items. That’s why it is important to set SD minimums and (like the markup) keep them realistic in terms of balancing customer satisfaction (prices) and business profits.
And now you are a MATH WIZARD! Go have a coffee, you deserve it.
New Feature: Import a list of ISBNs into a pending order
Let’s say you had a lovely sit down with a rep, [with no Internet to order directly on your WebStore/or without access to your actual BookManager software] – now you are left with a size huge file that needs to somehow make its way into your Order Processing. Or perhaps you are using a supplier's Excel spreadsheet order form to enter the quantities you need – you can now take these files and import them from your BookManager WebStore where you will then send it up to your software. When you are logged into your site, simply click the cart button in the top right, under the login box. You will be taken to your online Order Processing page, and you should see a new cute box that says Import order: Text/File
NOTE: The Excel file needs to have two columns, one called QTY and the other ISBN. You may need to rename these before saving the original files you have.
Once you have selected upload, a preview of your file will be shown. It is at this point, where you select which vendor and group you want it to under. Assuming everything is good to go – you can hit Import data and a message appears letting you know the process was successful AND to actually now submit the order from your online cart.