How do you calculate shortages?

[HotOiler3]

Okay, so I'm going to change my actual numbers slightly just for simplification purposes.  But I'm curious how you guys calculate shortages,  Here's my numbers.

 

My box was stocked with 50 items, there was $5.00 in the box, but 10 Items were missing.   

 

Is this considered:

50% shortage because only HALF of the items taken were paid for?

Or 10% shortage because 5 items were stolen out of the total 50 items left in the box?

Or some other percentage?  If that's the case please explain, I've read on here many shortage numbers, but never the formula that is used to get those numbers.

 

Thanks guys.

[AngryChris]

Other people might somehow do things differently but I have cards like this:

 

-------------------

Date              Pieces Left      Pieces Used    Cash     Shortage

 

11-1-14         50                   10                     5.00      5.00

                    50

 

-------------------

So.. I serviced the box on November 1st, 2014, there were 10 pieces used and only $5 in the box... so the shortage is $5.00 OR 50%.  The shortage percentage should be based off of the actual cash shortage ($5.00) divided by the number of pieces used (10 pieces).  5/10=50%.

 

The reason why I put the 50 below everything else is because I obviously had to record that I LEFT 50 pieces in there for the next cycle.  When I get to the location, I will know that I left exactly 50 pieces... and I would fill out the date, items USED, cash, and shortage (but not pieces left) on that cycle to figure out everything else.

 

I hope that helps.

[HotOiler3]

Exactly what I was looking for Chris, thanks for chiming in.   Now, I realize this is ultimately up to ME to decide, but from what I think I remember reading, most of you honor box guys will pull a box if shortages are consistently over about 30%? Certainly 50% shortage is TOO MUCH right?

[AngryChris]

Exactly what I was looking for Chris, thanks for chiming in.   Now, I realize this is ultimately up to ME to decide, but from what I think I remember reading, most of you honor box guys will pull a box if shortages are consistently over about 30%? Certainly 50% shortage is TOO MUCH right?

 

Firstly, I have only been doing this since February of this year (2014) so I don't have the same level of experience as these other guys, but it was very easy for me to figure it out since I have plenty of experience with vending machines.

 

And yes, it is ultimately up to you.. it's your business!  It's YOUR choice to decide what type of service you want to provide and whether you want to provide a service at all.  If it doesn't make sense (or money) then pull the box.  Honor boxes are great because placing and removing a box literally takes seconds rather than hours (compared to vending machines).

 

As for the shortages... I divide my accounts into roughly two types: profit makers and loss preventers.  To be a profit maker means that you consistently make a fair amount of profits regardless of the shortage %.  To be a loss preventer means that the shortages are below 50% but almost all of the pieces are consumed during regular cycles.

 

Here is an example of a profit maker with a high shortage rate:   averages 40 pieces sold every 2 weeks with a 30% shortage rate.  It costs me an average of maybe 40 cents per unit in my boxes... so if you add a 30 cent shortage to that 40 cent cost, you get 70 cents in the form of an expense (to figure out the profit).  That means, I only make about 30 cents per unit.  If I sell 40 pieces even as low as 30 cents per unit in the form of profit, that's $12 every other week (or $24 every 4 weeks).  $24 in profit in a month is pretty good if you ask me.

 

Here is an example of a profit maker with a low shortage rate:  averages 15 pieces every 2 weeks with 10% shortage.  That means my expense is 40 cents + 10 cents (50 cents) which means I profit 50 cents per unit.  15 pieces = $7.50 every 2 weeks or about $15 every 4 weeks.  $15 in 4 weeks isn't bad.

 

Here is an example of a loss preventer:  averages 30 pieces per week with 50% shortage.  My expense adds up to 40+50 = 90% which means I make 10% profit per unit.  Those 30 pieces make me $3 in profit every 2 weeks or $6 every 4 weeks.  $6 is not good but this SAVED me from throwing away 30 pieces (40 cents per unit ACTUAL COST) which is $12 every 2 weeks or $24 every 4 weeks.  I would rather break even ($0 in profit) than throw product away... so a loss preventer helps out.  I just let the account know where they stand when they complain about things.. but they usually don't complain because many of them know they aren't paying anyway and they want the box to stay.

 

Here is an example of a crappy account: averages 5 pieces per week with a 0% shortage.  My expenses are only 40 cents per unit which means I profit 60 cents per unit... or about $3 every other week.  This account is neither a good profit maker nor is it a good loss preventer.  I pull this account.

 

The reason why I use all of these examples is because MY decision to pull boxes has far more to do with the ability to MAKE A PROFIT or REDUCE A LOSS rather than any percentages.  The shortage percentage is simply used to help calculate my profit.

Always calculate your actual PROFIT before you decide to pull a box.  I learned this lesson a bit later than I should have.

[HotOiler3]

Chris, regardless of how long you've been doing it, you seem to be good with the numbers,  I appreciate your input despite how long you've been doing it.   Numbers were never my strong suit,  in fact I'm a bit worried if I'm going to be able to figure out the numbers when they aren't as "even" as they were today, my ACTUAL numbers were, 11 items missing, and $6.00 in the box.   Pretty easy to figure out that's about 50%,  I guess we'll see as time goes on..... At any rate, thanks for your detailed input.

[AngryChris]

Long detailed replies are what I do and numbers are what I am naturally good with.  The honor box business is much easier for me to deal with because it is almost entirely a numbers thing.  Vending machines involve numbers too but repairs, upgrades, and moving expenses can affect numbers.  It is much more difficult to calculate profit-per-account in vending machines than honor boxes.. but vending machines can be far more profitable.

 

Trust me.. I am good with numbers but keeping track of honor boxes is easy.  Just use some note cards (one note card for each account).  I use the slightly larger size note cards (I think they are maybe 3.5" x 5" or something along those lines) for my accounts.  If I ever get around to it, I will take a picture of a card so you can see how I do it.

 

This is just my personal advice and it is in no way superior to anyone else's methods but I use both low-tech and high-tech methods for recording data.  For vending machines, I use note cards to record sales data for that cycle and those numbers go directly into quickbooks.  For honor boxes, those all go on recurring notecards (I keep using them until I run out of lines on the cards).  When I run an honor box route, that entire route's sales are put into one notecard as one account (honor box account) and that is put onto a notecard that I would use for a vending machine and recorded.  If I collected $100 on my honor box route, that $100 is recorded on one note card for that day, then it goes into quickbooks.

 

The reason why I use both high tech and low tech methods is because it is a lot easier and cheaper than constantly editing some kind of tablet or phone program.