MoneyStock
One shelf, two buying rates for the same item
Twenty-five bags cost Rs 210 and fifteen cost Rs 232, but the shelf shows one heap. Three honest ways to cost it, and which rate to price on.
Five steps for a shelf with two buying rates
- 1Mark the lot the day it landsRate on the carton, a slip in the box, or a coloured dot. Two minutes.
- 2Sell the older lot firstThe old cost stays true until that lot is finished, and nothing goes stale.
- 3If you cannot keep them apart, blend one costTotal paid divided by units on the shelf. One number to remember.
- 4Cost your profit on what you actually paidNot the rate you have known the longest.
- 5Set your selling rate on what refilling costsThe shelf has to be filled again out of this sale.
Forty bags sit on one shelf: twenty-five bought at Rs 210 and fifteen at Rs 232. Your profit is built on whichever cost you use, and most shops quietly use the older, cheaper one. Cost your profit on what you actually paid. Set your selling rate on what refilling will cost you.
How the same item ends up with two costs
Nobody plans a mixed shelf. It happens because deliveries happen.
The rate moves between one delivery and the next. Your supplier's own cost went up, so yours went up, and the carton that landed on Tuesday cost more than the one that landed a fortnight before it. If that keeps happening without anybody telling you, read what to do about a supplier who raises his rate quietly.
You took a bulk deal. You ordered double the usual quantity because the rate dropped on the bigger order, and half of it is still standing behind stock you had not finished.
The carriage sat on one delivery and not the other. The supplier's van came the first time and cost you nothing. The second time you sent a rickshaw and paid Rs 300 for the trip. Spread over a carton, that is a few rupees on every unit, and those rupees are part of what the goods cost you.
A carton came in scuffed and you argued the rate down. Same goods, lower cost, sitting beside full-price stock.
Two buying rates on one shelf is not a mistake to fix. It is the normal state of any shop that buys the same item more than once. This is a different thing from selling one item at two rates, retail and wholesale: here the two numbers are on the buying side, where the customer never sees them. The only real question is whether your arithmetic knows about them.
One heap on the shelf, two numbers behind it
At 9:20 on a Thursday morning the van stops outside Imran's general store and the boy carries in six cartons of washing powder. Imran checks the bill, sees the rate has moved from Rs 210 to Rs 232, says nothing about it, and stacks the new packets on the shelf. The old ones are still there. He slides them along to make room and sets the new ones beside them.
By eleven he has sold nine packets. Ask him what each one cost him and he answers Rs 210 without pausing. He answers that because it is the number he has carried in his head the longest, and because what he is looking at is one row of identical packets.
His eyes see one item. His money went out in two amounts.
That is the whole trap, and it has nothing to do with being careless. A mixed shelf shows your mind a single picture and hides the second number completely, so the mind uses the cost it knows best. Notice the direction it fails in. A shop never accidentally overstates what its goods cost. It understates them, and then reports a profit it is not making.
Three honest ways to cost a mixed shelf
Say you have forty units. Twenty-five came in at Rs 210, fifteen at Rs 232, and you sell at Rs 250. There are three honest answers to "what did that one cost me", and one careless answer most shops use without ever choosing it.
Oldest first. Treat the shelf as a queue. The first twenty-five you sell cost Rs 210 each, so each one earns Rs 40. The twenty-sixth costs Rs 232 and earns Rs 18, and so does everything after it. This is the truest picture of what happened, and it matches how goods should move anyway, oldest out first. Its one demand is real: you must be able to tell the two lots apart when you reach for one.
The average. Add what the whole shelf cost and divide by how many are on it. Rs 5,250 plus Rs 3,480 is Rs 8,730 across forty units, so one unit costs Rs 218.25. Every sale shows Rs 31.75. Slightly wrong on each single sale, exactly right by the time the shelf is empty, and the easiest method in the world to run, because there is only ever one number to remember.
The newest rate. Cost everything at what it would take to replace it today, which is Rs 232. Your profit reads Rs 18 a unit, lower than the truth while the old lot lasts. That understatement is on purpose and it is useful, because Rs 232 is the money you will really have to spend to put the packet back.
Forty units, one selling rate, three ways to cost them
An example only, not the rate of any real product. Put your own two delivery rates into the same six lines.
Now the careless answer. Cost all forty at Rs 210 and the shelf reports Rs 1,600 of profit when it made Rs 1,270. Rs 330 that never existed. Nobody decides to do that. It happens by not deciding.
So: oldest first if you can keep the lots apart, because it is the truth and it costs you nothing but a marker. If you cannot, the average, and treat it as a proper method rather than a second best. Both land on the same total by the end of the lot. Only the careless answer lands somewhere else.
The refill trap
Bilal sells cooking oil and rice from a corner shop. On Saturday evening he counts a good seven days: twenty bottles gone at Rs 250, so Rs 5,000 came in. He costs them at Rs 210, the rate he has known since he first stocked the brand, calls it Rs 800 of profit, takes the Rs 800 out for the house and sleeps well.
On Monday the delivery arrives at Rs 232 a bottle. Twenty bottles now cost Rs 4,640, not Rs 4,200. The Rs 5,000 that came in has to cover that first, and what is left is Rs 360, not Rs 800. The Rs 440 he already spent came out of the shelf itself.
A good week that quietly shrank the shelf
Example figures, not real product rates. Run the same five lines on any item whose delivery rate has moved.
Do that for a few rounds and the pattern is unmistakable. Sales look fine. The profit line looks fine. The shelf keeps thinning and the cash never quite stretches to a full order.
Every sale costed at an old, cheaper rate hands you money that is already spoken for. It is the same money you were going to spend on the replacement, and you end up spending it twice: once on the shelf, once out of the drawer. That is also the fastest way to turn your real profit figure into a work of fiction.
Look back for profit, look forward for your rate
Here is the rule of thumb, short enough to keep.
Cost your profit on what you actually paid. Set your selling rate on what refilling will cost.
They sound like one instruction and they are two, because they answer different questions. Profit asks what happened: money left your hand at Rs 210 or at Rs 232, and no wishing changes which. Your selling rate asks what has to happen next: there is a gap on the shelf, and filling it costs today's rate, not the rate from the delivery before.
Two questions, two different rates
On the shelf we have been working with, Imran's honest profit on packet number three is Rs 40, because that packet genuinely cost Rs 210. His selling rate from the day the new cartons landed should be built on Rs 232, because that is what packet number forty-one will cost. Both are true at once.
If your selling rate is due a rethink because the buying side moved, the working is the same as when you set a rate from scratch: cost first, then the margin you need, then what the street will bear.
Mark the lot the day it lands
Every method above dies at the same point: you cannot tell which unit came from which delivery. Fix that at the door, not later.
Write the rate on the carton with a marker while you take delivery. Fold a slip with the rate and the date and drop it in the box. Put the new lot on the left of the shelf and always sell from the right. Stick a coloured dot on the newer batch. It does not matter which trick you pick, as long as it is the same one every time and it happens while the delivery boy is still standing there with the bill.
Two minutes at delivery is the whole cost. In exchange you get an honest profit figure on every sale for as long as that lot lasts, and the older goods keep moving out first, which is half of keeping stock straight anyway. The habit also saves you an argument with yourself later. Thirty days on, nobody remembers what the second delivery cost. The carton remembers.
When a few rupees are not worth your time
A system that eats more attention than it saves is a bad system, so here is where to stop.
If the gap between the two rates is a rupee or two on a fast mover, let it go. Blend it into an average, sell it, and put your attention somewhere with more money in it. A Rs 3 gap across forty units is Rs 120 in total, and you will burn more than that chasing it. If a lot clears in seven days, the two rates never sit side by side long enough to fool anybody.
Sort your shelves by what is worth the trouble. Expensive items, anything whose rate swings, and slow movers where a lot sits for months all deserve the marker. Cheap fast movers do not.
The place where all of this gets easier is the record itself. Wasoolo keeps a buying rate on the item, not in your memory. A delivery that comes in at a new rate is recorded at that rate instead of overwriting the old one, so the shelf carries its own history. The profit view in Wasoolo then works from what you actually paid rather than the number you have been carrying around, which is exactly the number this article is about. Wasoolo is 100% free to download and runs on Android, iPhone, web, Windows and macOS.
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Common questions
Which method should a small shop actually use?
Oldest first, if you can keep the deliveries apart on the shelf. It tells you the truth on every sale and costs nothing but a marker. If you cannot keep them apart, use one blended average and stop worrying, because both give the same total by the time the lot is finished.
Does the average not make every single sale slightly wrong?
Yes, by a few rupees each way, and it corrects itself. While the old lot lasts, the average understates your profit a little. On the newer stock it overstates it by the same amount. By the last unit the two errors have cancelled out.
My supplier changes his rate on almost every delivery. What then?
Then the average is your friend, worked out afresh whenever a delivery lands. Add the new delivery's cost to whatever the shelf was already worth, divide by the new count, and that is your working cost until the delivery after it. One line of arithmetic.
Should I raise my selling rate the day a delivery costs more?
Not necessarily that day, but you should decide rather than let it happen to you. Work out what the new cost does to your margin, then either move your price or keep it and accept a thinner margin knowingly. The mistake is the one you make by not looking.
Do carriage and loading charges go into the cost?
They should. Whatever you paid to get the goods onto your shelf is part of what those goods cost. Divide the trip's charge across the units it carried, add it to the rate on the bill, and use that combined figure as the cost of that lot.
I stock hundreds of items. Am I supposed to do this for all of them?
No, and trying would sink you. Do it where the money is: the expensive items, the ones whose rate keeps moving, and the slow movers that sit long enough for two lots to overlap. Let a Rs 2 gap on a fast mover go.
Not sure which of your shelves is quietly carrying two costs? Tell us what you sell and we will show you where to start marking.