February 26, 2024

Merchandise Residual Value in Practice

Here are the top ten selling items for the past year for a brand ... in this example (for the sake of simplicity, all items existed the year prior as well), I illustrate total sales for each item, then list MRV (merchandise residual value) for each item (i.e. the amount of future value that is added to each customer who buys that item because the customer buys that item), and then a sum of last year's sales and total MRV for the next year. Yes, you want to sell items that sell well and add value to customers in the future.

This is the look you should have on your face when you look at Item #6.

Item #6 is a problem child. It is a low-priced item ($9.99) that sells the second-most units of any of the top ten sellers. But for every $9.99 unit sold, MRV is a negative $4.75, meaning the customers who purchase the $9.99 item spend $4.75 LESS in the next year as a consequence.

In other words, the item is a loyalty killer.

If you take last year's sales and what you lose in the next year by selling that item into account and take the sum of the two metrics down to profit, you will learn that this best selling item is actually UNPROFITABLE to your brand.

I'm guessing you want to know these facts for your business, right?

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