Glossary
Retail glossary
Short, plain definitions of the inventory, GST and store terms that come up when you run more than one outlet. Each term links to a free tool or guide where you can put it to work.
A
Average order value (AOV)
Total sales divided by the number of bills or orders in a period. If a store billed ₹6 lakh across 1,200 bills, AOV is ₹500. Bundles, add-ons at the counter and minimum-value offers raise it.
B
Batch and expiry tracking
Recording each lot of a product with its batch number and manufacturing and expiry dates, so stock is sold in date order, recalls can be traced to a batch, and items close to expiry are found before they become losses. Essential for pharmacy, grocery and cosmetics.
Break-even point
The sales at which total contribution exactly covers fixed costs, so the business or store makes neither profit nor loss. Break-even sales = fixed costs / contribution margin %. For a new store, compare store-level break-even (its own costs) with company-level break-even (including a share of head office).
C
Contribution margin
What is left from each rupee of sales after product cost and other costs that rise with sales, such as card fees, packaging and royalty. It is the money available to pay rent, salaries and other fixed costs, and then profit.
Cycle count
Counting a small group of items on a rolling schedule instead of the whole store at once. High-value and fast-moving items are counted most often. Cycle counts find shrinkage and record errors earlier than a yearly full count, without closing the store.
D
Dead stock
Stock that has not sold, or has barely sold, for a set period such as 90 or 180 days, or that will not sell before it expires or goes out of season. It ties up cash and space; the earlier it is moved, bundled or marked down, the more of its cost is recovered.
Delivery challan
A document that travels with goods moved without a sale, such as a stock transfer between two locations under the same GSTIN, goods sent for job work or on approval. Rule 55 of the CGST Rules lists what it must contain, and it is issued in three copies.
E
E-way bill
An electronic document generated on the GST e-way bill portal before goods are moved, generally when the consignment value is above ₹50,000. It applies to stock transfers as well as sales, and some states set a different limit for movement within the state.
Economic order quantity (EOQ)
The order size that keeps the combined cost of placing orders and holding stock lowest. Ordering in larger lots means fewer orders but more cash and space tied up; EOQ finds the balance for an item with steady demand.
F
FEFO (first expired, first out)
Selling or picking the stock with the earliest expiry date first, whatever order it arrived in. It cuts expiry write-offs in grocery, pharmacy and food, and needs batch and expiry tracking to work.
FIFO (first in, first out)
Selling the oldest stock first, in the order it was received. FIFO is also a method of valuing inventory, where the cost of the oldest purchases is charged to sales first. For dated products, FEFO is the safer picking rule.
Franchise royalty
The fee a franchisee pays the brand for the right to trade under its name and use its systems, usually a percentage of monthly sales, sometimes tiered or fixed, often with a minimum and a separate marketing fund contribution.
G
Goods received note (GRN)
A record made when a delivery arrives, listing what was actually received against the purchase order or transfer. It is where short supplies, damage and wrong items should be caught, before the stock is added to inventory and the supplier is paid.
Gross margin
Sales minus the cost of the goods sold, shown as a percentage of sales. If an item sells for ₹1,000 and cost ₹650, gross margin is 35%. Use the margin after discounts, on sales excluding GST.
GSTIN
The 15-character GST identification number given to each registration. The first two digits are the state code and the next ten are the PAN. A business with stores in two states holds two GSTINs, and GST law treats them as separate persons.
H
HSN code
The Harmonised System of Nomenclature code that classifies goods for GST. It decides the tax rate and must be shown on tax invoices and delivery challans, with the number of digits depending on turnover.
I
Inventory days (days of inventory)
How many days the current stock would last at the current rate of sale: stock at cost / cost of goods sold per day. Fewer days means less cash tied up, too few means stockouts.
Inventory turnover (stock turn)
How many times the average stock is sold and replaced in a year: cost of goods sold / average stock at cost. Higher turnover means stock converts to cash faster. Compare it within a category, as grocery turns far faster than jewellery.
M
Markup
Profit as a percentage of cost price, rather than of selling price. An item that cost ₹650 and sells for ₹1,000 has a 53.8% markup but a 35% gross margin. Mixing the two up is a common pricing mistake.
MRP (maximum retail price)
The highest price, inclusive of all taxes, at which a pre-packaged product can be sold to a consumer in India, printed on the pack under the Legal Metrology rules. Retailers can sell below MRP but not above it.
O
Omnichannel retail
Selling through stores, your own website, marketplaces and other channels on one shared stock and customer record, so a customer can buy online and collect in store, or a store can fulfil an online order, without overselling.
P
Purchase order (PO)
The document a retailer sends a supplier to order goods, with items, quantities, prices and delivery terms. Matching the PO, the goods received note and the supplier invoice before payment is the basic control against paying for goods that never arrived.
R
Reorder point
The stock level at which a new order should be placed so it arrives before the shelf runs out: average daily sales x supplier lead time in days, plus safety stock.
S
Safety stock
Extra stock held to cover demand above average or a late delivery. Too little causes stockouts, too much ties up cash. It is usually set from how much daily sales and lead time vary.
Sell-through rate
Units sold as a percentage of units received over a stated period. A batch of 200 with 130 sold in 60 days has a 65% sell-through for those 60 days. Used to judge new ranges, single deliveries and seasonal stock.
Shrinkage
The gap between the stock your records show and what is physically there, caused by theft, unrecorded damage or expiry, receiving and billing errors, and unchecked transfer shortages. Usually measured at cost and as a percentage of sales.
SKU (stock keeping unit)
A unique code for each distinct item you stock, down to size, colour and pack. A shirt in four sizes and three colours is 12 SKUs. Clean SKUs are the base for accurate stock, reorders and reports.
Stock transfer
Moving stock from one store or warehouse to another within the same business. Between locations under the same GSTIN it moves on a delivery challan; between different GSTINs it is treated as a supply and needs a tax invoice. The receiving location should count it against the document.
Stockout
When an item a customer wants is not available. The cost is the lost sale, and often the customer, who may not come back. Reorder points, safety stock and moving stock between stores reduce stockouts.
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