In short
- 01Most below-cost sales are accidents: a cost went up and the price didn't, a discount was stacked, or the wrong unit was sold.
- 02Keep cost current first: include freight and duty, and update when suppliers raise prices.
- 03Make below-cost sales and price overrides need a permission, and record who approved each one.
- 04Know the difference between markup and margin: a 30% markup is only a 23% margin.
- 05Review a margin report weekly for negative lines, by store and by cashier.
On this page
- In short
- What does selling below cost mean?
- How do retailers end up selling below cost?
- Worked example: how a healthy price turns into a loss
- Which controls actually stop below-cost sales?
- Which cost should the below-cost check use?
- Is it ever right to sell below cost?
- How does Momentum stop below-cost sales?
- Questions people ask
To stop selling below cost, you need three things: an accurate cost for every product (including freight and duty), a till that refuses a price below that cost unless someone with permission approves it, and a weekly report of any sales that went through below cost anyway. Most below-cost sales aren't deliberate. They come from a supplier price rise that never reached the shelf price, a manual override, or discounts that stacked, so the fix is mostly process and permissions, not policing.
What does selling below cost mean?
A sale is below cost when the price the customer pays, after discounts, is less than what the unit cost you. "Cost" should be the landed cost (supplier price plus freight, duty and handling; see landed cost explained), measured the way your costing method measures it: the specific batch's cost under FIFO or LIFO, or the running average under weighted average.
How do retailers end up selling below cost?
- Cost rose, price didn't. A supplier increase or a freight surcharge lands on the purchase receipt, but nobody reprices the shelf.
- Manual price overrides. A cashier matches a competitor's price or "does a deal" for a regular customer.
- Stacked discounts. A line discount, a basket discount and an offer all apply to the same item.
- Wrong unit of measure. A case of 12 is rung up at the single-unit price.
- Offers on thin-margin items. Buy-one-get-one on an item with a 20% margin is a loss on every pair.
- Costs left out. Freight and duty were never added, so the "cost" on screen is lower than the real one.
Worked example: how a healthy price turns into a loss
A product costs $8.00 and sells for $10.50. The supplier raises the price and freight goes up, so the landed cost becomes $9.40. The shelf price stays at $10.50. Then a cashier gives a regular customer 20% off.
- Price
- $10.50
- Cost
- $8.00
- Margin per unit
- $2.50
- Gross margin
- 23.8%
- Price
- $10.50
- Cost
- $9.40
- Margin per unit
- $1.10
- Gross margin
- 10.5%
- Price
- $8.40
- Cost
- $9.40
- Margin per unit
- −$1.00
- Gross margin
- −11.9%
- Price
- $12.22
- Cost
- $9.40
- Margin per unit
- $2.82
- Gross margin
- 23.1%
- Price
- $13.43
- Cost
- $9.40
- Margin per unit
- $4.03
- Gross margin
- 30.0%
| Scenario | Price | Cost | Margin per unit | Gross margin |
|---|---|---|---|---|
| Before the cost rise | $10.50 | $8.00 | $2.50 | 23.8% |
| After the cost rise, price unchanged | $10.50 | $9.40 | $1.10 | 10.5% |
| After the cost rise, 20% discount | $8.40 | $9.40 | −$1.00 | −11.9% |
| Repriced at a 30% markup | $12.22 | $9.40 | $2.82 | 23.1% |
| Repriced for a 30% margin | $13.43 | $9.40 | $4.03 | 30.0% |
Two lessons. First, the cost rise alone cut the margin by more than half before anyone discounted anything. Second, markup and margin are not the same: marking cost up by 30% gives a 23.1% margin. To earn a 30% margin you divide cost by 0.70.
Which controls actually stop below-cost sales?
- 1Keep cost current. Record freight and duty on purchase receipts, and treat every supplier price increase as a repricing task, not just an invoice.
- 2Make below-cost sales need a permission. The till should block a price below cost for most staff, and let a named manager approve exceptions.
- 3Make price overrides need a permission too, separately from discounts, so you can let staff apply approved offers without letting them type any price they like.
- 4Cap discounts by role, and decide whether offers and manual discounts can stack.
- 5Check offers against margin before they go live, especially buy-X-get-Y offers on low-margin items.
- 6Sell in the right unit. Set up packs and cases as units of the product, with their own prices, so a case can't go through at the single price.
- 7Hide cost from roles that don't need it, and show margin to those that do.
- 8Review weekly. Run a margin report filtered to negative or thin lines, by store and by cashier, and follow up the patterns.
Which cost should the below-cost check use?
The answer depends on your costing method, and it can flip a sale from profitable to loss-making. Take an item with two batches on the shelf: 100 units bought at $8.00 and a newer 100 at $9.40, selling at $9.00.
- Cost of this unit
- $8.00
- Margin per unit
- $1.00
- Gross margin
- 11.1%
- Cost of this unit
- $8.70
- Margin per unit
- $0.30
- Gross margin
- 3.3%
- Cost of this unit
- $9.40
- Margin per unit
- −$0.40
- Gross margin
- −4.4%
| Costing method | Cost of this unit | Margin per unit | Gross margin |
|---|---|---|---|
| FIFO (oldest batch first) | $8.00 | $1.00 | 11.1% |
| Weighted average | $8.70 | $0.30 | 3.3% |
| LIFO (newest batch first) | $9.40 | −$0.40 | −4.4% |
Under FIFO the sale looks fine today, but the next 100 units cost $9.40 and every one of them will sell at a loss. That is why repricing should follow the latest cost you are paying, whatever method your books use, and why the till's check should use the same cost your ledger will record for the sale. For more on the methods themselves, see FIFO vs LIFO vs AVCO.
Is it ever right to sell below cost?
Sometimes: clearing short-dated or discontinued stock, matching a competitor on a loss leader, or keeping a key account. The point of the controls isn't to forbid it. It's to make it a decision, taken by someone allowed to take it, and recorded, instead of an accident nobody sees until the month's margin comes in low.
How does Momentum stop below-cost sales?
In Momentum by Ltiora, selling below cost and overriding a price are separate permissions. A cashier without them can't complete the sale; a manager who has them can, and the approval is recorded in a hash-chained audit trail. Costs include landed cost from purchase receipts and follow your costing method (FIFO, LIFO or weighted average), and prices can be set per batch where batches cost different amounts. Roles decide who can see cost at all.
Offers, including buy-X-get-Y-free and branch-only offers, are recorded separately from manual discounts, so reports can tell them apart. The Sales Margin, Margin by Location and Discounts Applied reports show where margin went. The optional Momentum AI sale line check can flag a line that looks wrong, such as a price far below the usual one, before the sale completes. It is off by default, not part of the standard plans, and it flags; it never changes a sale.
Questions people ask
What is the difference between markup and margin?
Markup is profit as a share of cost; margin is profit as a share of price. A $9.40 item sold at $12.22 has a 30% markup ($2.82 ÷ $9.40) but a 23.1% margin ($2.82 ÷ $12.22).
Which cost should a below-cost check use?
The landed cost, as your costing method measures it: the specific batch's cost under FIFO or LIFO, or the running average under weighted average. A check against the supplier's list price will miss freight and duty.
How do I find below-cost sales that already happened?
Run a sales margin report by line for the period and sort by margin. Negative lines are below-cost sales; group them by store, cashier and product to see whether they are one-offs or a pattern.
Should cashiers be able to see product cost?
Usually not. Cashiers need to know a price is blocked, not what the cost is. Managers and buyers need cost and margin.
Selling below cost is rarely a pricing strategy. It is a gap between cost and price that nobody was asked to close. Keep costs complete and current, make below-cost prices and overrides a permission rather than a keystroke, and look at negative-margin lines every week.
Try to sell below cost in Momentum
In a demo, log in as a cashier and try it. Then log in as a manager, approve it, and find the approval in the audit trail and the sale in the margin report.
