Which items in your shop actually earn the money

The item that sells most is rarely the item that earns most. For every product, subtract what you paid from what you sold it for, then multiply by how many pieces move in a month. Do that for twenty items and your shop's real earners appear, and they are usually not the ones you expected.

The busiest shelf is not the earning shelf

Ask a shopkeeper which item earns him the most and he will name the one he sells most often. It is an honest answer and it is wrong more often than it is right.

Volume is what you see all day. Every hand that comes to the counter reaches for the same four or five things, so those things start to feel like the shop itself. Earning is invisible. It sits in the gap between what you paid the supplier and what the customer handed you, and that gap is a different size on every shelf.

Two things from an ordinary counter. A cold drink moves forty times a day and leaves you a few rupees each time. A packet of razor blades moves twice a week and leaves you sixty. At the end of a month the drink produced far more turnover, and the razors may well have produced more money.

Neither number is written anywhere. You have to work it out, and until you do, every decision you take about space, stock and cash is a guess wearing the clothes of experience.

This is not the same question as working out your shop's real profit. That one tells you what the whole shop earned after rent, light and everything else. This is the layer underneath it: which parts of the shop produced that number, and which parts quietly took up space and cash and gave very little back.

One subtraction, done properly

For any single item the earning is one line:

What the customer pays you, minus what that item actually cost you to have on the shelf.

The first number is easy. The second is where the truth usually gets lost.

What an item cost you is not always the figure printed on the supplier's bill. If you fetched the goods yourself, the fare is part of the cost. If a carton of twenty-four arrived with two broken, then the two broken pieces are part of the cost of the twenty-two you can sell. If the supplier sent two free with fifty, then fifty-two pieces cost you what fifty cost, and your real rate per piece is lower than the bill says.

Most shopkeepers know all of this and still use the bill rate, because the bill rate is written down and the rest lives in their head. That is exactly why some items look profitable and are not.

The second half of the subtraction is quieter still. An item that sits for five months before it sells has used your cash for five months. It has not charged you anything, but that money could have been three turns of a fast line instead. So the honest measure is never the gap on one piece. It is the gap on one piece multiplied by how many pieces move in a month.

A tea packet with a Rs 9 gap that sells 200 times a month gives you Rs 1,800. A ceiling fan with a Rs 700 gap that sells twice a month gives you Rs 1,400. The fan feels like a big sale every time it happens. The tea is quietly beating it, and nobody in the shop can feel that, because feelings run on the size of the sale, not on the total.

Say you check five items on your own counter

Take five things you sell, from different shelves, and lay them out. Buying rate, selling rate, and roughly how many pieces leave in a month.

Say you check five things from five different shelves

Tea packet: Rs 9 gap, about 200 a monthRs 1,800

Soap bar: Rs 6 gap, about 340 a monthRs 2,040

Oil tin: Rs 55 gap, about 38 a monthRs 2,090

Shampoo strip: Rs 14 gap, about 60 a monthRs 840

Thermos flask: Rs 400 gap, about 1 a monthRs 400

What these five earned in a monthRs 7,170

The biggest gap per piece is at the bottom of the list. The smallest gap is second from the top.

The order at the bottom is almost never the order a shopkeeper would have guessed at the top. The soap has the smallest gap of all five and it is the second biggest earner in the shop, because it moves. The thermos has the biggest gap of all five and it earns the least, because it barely moves at all.

Two more things worth reading off that table. First, the cooking oil earns well and needs a lot of cash sitting in it, so a shop short of cash has to think about it differently from one with money in hand. Second, the thermos is not a mistake yet. One thermos a month at Rs 400 is still Rs 400, and if it sits beside things people came for anyway, it is nearly free money. It becomes a mistake when there are nine of them on the shelf and one sells.

Do this for twenty items and you will find that a small handful produce most of what the shop earns, a long middle produces a little each, and a tail produces almost nothing while holding real cash. That is the shape of nearly every shop, and knowing which of your items sit where is worth more than any advice anybody can give you from outside.

The four kinds of item every shop carries

Once you have the numbers, every item falls into one of four boxes, and each box needs a different decision.

The four boxes every item falls into

Moves fastMoves slowly

Big gap on each pieceMoves fastYour real earners. Give them room and depth.Moves slowlyFeels best, earns least. Keep one, order on sale.

Small gap on each pieceMoves fastQuiet rent-payers. Never starve them of shelf.Moves slowlyThe thinning list. This is where dead stock begins.

What it does with your cashMoves fastHands it back several times a monthMoves slowlyHolds it until the piece finally goes

How the sale feels at the counterMoves fastOrdinary, almost boringMoves slowlyA good afternoon, every single time

The decision it needs from youMoves fastBuy deeper and more oftenMoves slowlyCap the quantity, count the months

The dangerous box is the last one: the slow item with a fat gap. It is dangerous precisely because it feels like the best thing in the shop every single time it sells. Somebody hands you Rs 2,500 and you make Rs 600, and that afternoon feels good. What the afternoon does not tell you is that the money was locked up for four months to earn it, and that four other items on the same shelf would have turned three times each in the same period.

The quiet winner is the first box: small gap, high movement. Shopkeepers rarely give it enough shelf, because each individual sale is boring. Boring sales are what pay rent.

And the third box, slow with a small gap, is the one to actually thin out. It is where dead stock is born: goods bought for a reason that made sense once, still sitting there, quietly holding money that could be working.

Why the fast-mover with no margin still deserves its space

There is a trap in this whole exercise, and it costs shops customers.

Once you can see that the cold drinks and the loose sugar earn you very little per piece, the tempting move is to raise those rates or to stop bothering with them. Do not do it without thinking a second time.

Some items are why people walk in. They have a price everybody in the street knows by heart. If yours is higher, the customer notices immediately, and he does not simply buy that item elsewhere. He buys everything elsewhere, including the four things you had a good gap on. A shop is not twenty separate businesses; it is one visit, and the visit is what earns.

So the honest question about a low-earning fast-mover is never "should I keep it?" It is "does it bring the trip?" A daily bread or milk that brings a customer past your counter six mornings a week has done its job even if it earns you almost nothing directly. A slow item with no gap and no pull is different, and it should go.

There is a middle road too. Keep the well-known item at the well-known rate, and make sure that the things next to it, the ones with no famous price, are rated properly. That is ordinary shopkeeping and it is where how you set your rates starts to matter more than what you buy.

Finding your real earners in one hour

You do not need to do this for every item in the shop, and you should not try. A shop with a thousand lines is not going to be measured in an evening, and it does not need to be.

The one-hour check, on one sheet of paper

1. 1Write down twenty items, not two hundredYour ten most-sold lines, plus ten that hold the most space or money.
2. 2Put the real buying rate beside each oneThe bill rate, with fare, breakage and free pieces worked back into it.
3. 3Put the rate you actually charge beside thatWhat the customer pays at the counter, not what the old sticker says.
4. 4Guess a month's movement, and round it downA rough count you will finish beats a perfect one you never start.
5. 5Multiply the gap by the movementGap on one piece times pieces in a month is what that item earned you.
6. 6Sort the page by that last columnThe order that appears is the shop you are actually running.

Pick the twenty that matter: your ten most-sold things, and ten that take up real space or real money. That covers most of what the decision is actually about. If you keep a proper buying rate against each product, most of this is already done, because the gap works itself out and you only need the movement.

This is one of the quiet reasons a shopkeeper puts stock into an app at all. Wasoolo keeps a buying rate and a selling rate on every product and ranks them by what they actually earned over a period, so the list you spent an hour building by hand is simply there the second time you want it. Doing it by hand once is still worth it, because doing it by hand once teaches you what the numbers mean.

One warning while you work. If you sell the same item at two rates, retail at the counter and cheaper by the dozen, do not average them into one figure or the whole table lies. Keeping two rates for one item straight is a small piece of discipline that makes every calculation after it honest.

What to change once you know

The list is not the point. What you do with it is.

Six changes the sheet should produce

• The top five earners have the easiest shelf to reach
• The top earners are bought deeper and more often
• Big-gap slow items are capped at one or two on the shelf
• Small-gap fast items keep their known rate, untouched
• Anything slow with no gap and no pull is on the thinning list
• The whole sheet is redone twice a year, not never

Move shelf space toward the top earners, and put them where a hand reaches without asking. Buy the top earners deeper and more often, because your cash returns fastest from them, and that is the whole argument in buying in bulk against buying little and often.

Set a rule for the fat-gap slow items: one on the shelf, ordered again only when it sells. That keeps the good margin available and stops it eating cash.

And re-check the list twice a year rather than never. Rates move, suppliers change, and an item that earned well can quietly stop earning without a single day feeling different at the counter. The whole exercise takes an hour, and it is the cheapest hour a shopkeeper can spend on his own shop.

I sell hundreds of items. Do I really have to check all of them?

No. Check your ten most-sold lines and ten that hold the most space or cash. That covers the decisions worth taking. The long tail of small items rarely changes anything.

My supplier's rate changes every few weeks. How can I fix a buying rate?

Use the rate you last paid, and note the date beside it. The point is not a permanent number. It is knowing roughly what the gap is, and noticing when it shrinks.

What about items I sell below cost to bring people in?

They can be worth keeping if they genuinely bring the trip, but they must be a short, deliberate list you decided on, not something you discover by accident when you finally do this calculation.

Should I stop keeping the items that earn least?

Only if they earn little and pull nobody. An item with a tiny gap that six customers come specifically for is doing a job that no table can measure.

How does the time an item sits count against it?

Not as a charge. Count it as a comparison: money resting in a slow item for four months is money that could have turned three or four times in a fast one, and that lost turning is the real cost.

My best earner needs the most cash. Should I still buy more of it?

Only up to what your cash allows without leaving you short for supplier bills. A good earner bought with money you needed elsewhere becomes a problem in a different part of the shop.