What Is Loss Prevention? Tips and Examples

Updated February 16, 2023

Loss prevention is an important component of many businesses and provides a number of benefits, including improved customer satisfaction and reduced shoplifting and inventory damage. Loss prevention is a strategy or several strategies that are used as part of an overall security management plan and work to reduce the amount of loss a company experiences. In this article, we'll explore what loss prevention is, tips for implementing loss prevention in your business and effective loss prevention strategies you can start using today.

What is loss prevention?

Loss prevention is a common component of retail and includes practices that businesses use to preserve their bottom line. Sometimes referred to as retail asset protection or profit prevention, loss prevention is any organizational activity that is specifically implemented to minimize preventable losses. Preventable losses can be defined as any company cost that comes as a result of purposeful or accidental actions on behalf of customers, employees or other individuals who interact with the business.

The most common causes of profit loss within a business include:

Operational errors: This type of loss is when business employees to not follow business protocols or best practices or the business in general lacks effective best practices and protocols that minimize human error. This is often the cause of inadequate training for employees.
Internal loss: Internal loss is defined as any type of profit loss caused by employees and other members of the business. Examples of internal loss include employee theft, package pilferage, selling products or family or friends at a discounted price, giving products away for free without proper authorization, under-ringing merchandise, and not ringing up sales in a way that allows employees to keep the payment for themselves.
Internal theft: Internal theft is a form of internal loss that is directly related to theft on behalf of employees and members of the company. Examples of internal theft include employee fraud, theft, waste and vandalism.
External theft: External theft is a type of profit loss that occurs outside of the members and employees of the company, such as when a customer steals goods. External theft also occurs as the result of vandalism or fraud performed by a customer.
Supplier fraud: While not common, supplier fraud is another source of loss that companies must be aware of. Supplier fraud is when a company's supplier does not provide the agreed-upon amount of goods that the company paid for or acts in unethical ways when working with a business.

The importance of loss prevention

Loss, also referred to as shrinkage, is a potential issue in a number of industries but is most commonly seen and presents the largest threat to retail businesses. Incorporating loss prevention into your organization is important for a number of reasons, with the primary reasons being that it:

Protects a company's bottom line
Helps to prevent shoplifting and other types of theft that negatively impact the company
Helps improve customer satisfaction by ensuring that the correct amount of inventory is displayed and available for customers to purchase
Prevents inventory deterioration or damage such as when inventory spoils or is wasted
Reduces instances of employee theft
Helps promote a culture of responsibility and safety that can lead to increased employee morale and investment in their jobs
May prevent supplier error or fraud
Reduces administrative errors including incorrect price listings and accounting errors

Tips for loss prevention

There are several things you can do throughout the course of your shift to help prevent loss. The following are tips to consider when working to maximize your company's loss prevention:

Lead by example: If you are the management or CEO at your business, you can lead by example by showing your employees good loss prevention practices and adhering to them no matter the situation. If you don't want your team members or employees taking items for free or stealing money, the C-level executives and management at your company shouldn't, either.
Pre-screen applicants during the hiring process: A good loss prevention practice is to pre-screen applicants before you hire them. This is includes conducting background checks and calling or otherwise contacting the applicant's references. If the candidate has been let go from a job in the past due to theft or another behavior that contributed to loss, it would likely be in your company's best interest that you did not hire them.
Use an external accountant: An external accountant can give you an unbiased analysis of your business' financial records. They may also be able to pick up on any inconsistencies with your finances that an internal accountant may have missed.
Double-check all incoming and outgoing merchandise: Another good loss prevention practice is to regularly double-check the merchandise going out of your company by comparing it to the invoices. You should also check incoming merchandise to ensure the supplier provided you with the agreed-upon product that you paid for.
Put up anti-theft signs: Anti-theft signs can help deter customers from shoplifting in your store. Your signage should include mention that shoplifters will be prosecuted and that there are security cameras throughout your store that customers should be aware of.

Strategies for loss prevention

The following are a few effective strategies you can incorporate into your company for the specific purpose of loss prevention:

Utilize physical security throughout your store

Physical security that's placed strategically throughout your store can help not only deter theft but also help you identify the person who participated in theft should it occur. One of the most common forms of physical security is security cameras. You should place security cameras at the entrance of your store, in the delivery and loading areas, throughout your store and on all the POS terminals in your store.

You can also consider hiring a security staff for additional physical security. Security guards add an extra layer of deterrent that helps minimize theft on the behalf of both customers and employees. Additionally, an alarm installed that goes off when a customer or employee tries to leave with an unpurchased item is another example of physical security that can help boost your loss prevention efforts.

Invest in POS systems with additional security features

A POS system that has added security features can help prevent loss and provide management with useful information that can help uncover the cause of loss should it occur. Many POS systems with additional security features include a management interface that requires employees to log in and out, which lets management know who was using the register at specific times. If theft occurs, you can easily check the POS system to see who was using it and use this information to narrow down the cause of theft.

Incorporate loss prevention training into the onboarding process

Another great loss prevention strategy is to incorporate loss prevention training into your new-hire onboarding process. You can also have current employees regularly participate in additional loss prevention training at various intervals throughout their employment. Examples of what to include in loss prevention training include what to do in situations that relate to loss or theft, the company's policies on loss prevention and theft and how to handle returns or defective product. You should also ensure the employee knows how to use the POS system and that they understand how it works in terms of loss prevention and safety.

Use electronic article surveillance (EAS) to minimize product theft

Electrical article surveillance (EAS) is a method in which you tag items with an EAS device that causes an alarm to go off should a customer or employee try to leave the store without first having it removed. The EAS device should only be removed during the check-out process after a store associate has rung the item up in the POS system.

Keep track of loss trends

Another good loss prevention strategy to implement is to regularly monitor loss trends in your company. Many losses are small enough to go unnoticed for several weeks or even months, so a regular look at loss trends can help you identify where loss is occurring and who might be responsible for the loss. Keep track of data related to loss and perform regular audits on any accounts that have been flagged for unexpected losses.

What Is Loss Prevention? Tips and Examples