What happens is that when you go to your point of sale software and check your selling report to see how things are selling. You will find items that are selling well but are making little profit. The question often raised here, is even accepting that the item is not making much, is it drawing people into your shop who buy other products?
Well, we can help you somewhat. The reason I say somewhat will be explained here.
Go to Register reports.
Now select "Top N Stock Sales for a Given Period"
Now put in say a year of sales and ask for the top 100 by quantity.
Outcomes a report with the top sellers for that year.
I have not got the heading here, but I will explain. Look at the envelope
45 is the stock ranking. It is the 45th best selling item in the shop. The 300 is the quantity sold. The next roll is profit, which is $77.45. In comparison, the item on top of it at 44 made the store $1159 profit. Now for many retailers would say to themselves is $77.45 profit enough to justify having this item? Is it enough to even pay the rent, much less the labour and other charges?
Now another issue that most retailers will ask here is, as it does sells well does it bring people into my shop who buy other products? That is very hard to measure, but we can give you an idea.
Go to reports > Sales register > Stock Sales companion sales by period
Now in options put in say last financial year and put in the product ENVELOPE TUDOR....
Now out pops up a report which will give you a listing of all the items that were sold with this item.
Then at the end will be a total.
The last number is the profit of $265.01, which is the total profit of all the items sold with this item.
Now the question is how much of that profit of $265.01 would you have made anyway with or without that profit. That is something you have to decide.
An analyst like me, as a first-level approximation in the absence of any other information, would probably say
A third would have brought something else in the shop to replace the envelope
A third would have left and gone elsewhere
A third would not have brought the envelope but everything else.
So I would say the loss involved in dropping the product is
2/3 x (the actual product $77.45) + 1/3 x ( companion sale of $265.01) = a loss of about $140.
If you can do a better estimate let me know.