Retailers’ margin profit has been more relevant lately than ever.
It all started with curbside pickup, the way many stores could sell their products during the Covid-19 pandemic.
Now, some experts are suggesting that retailers add similar programs:
“You really should offer social shopping.”
“Why don’t you offer free shipping and return?”
“Can’t you reach the trunk like Amazon?”
This advice is well thought out but misinformation.
If you have similar resources like Amazon, Walmart, or Target, great! Add as many bells and whistles as you want to your retail sales strategy.
But if you know anything like retailers, you don’t have unlimited capital from stockholders. And programs like this take money — additional costs that you’ll have to compensate for elsewhere.
The truth is that improving your retailers’ profit margin is a two-step process:
Step 1: Determine your average profit margin (and a good margin to shoot for.) Don’t worry. I’ll make this process straightforward for you, even if you’re not much into numbers.
Step 2: Apply my 15 Proven Ways to Increase Your Retail Profit Margin – No Complicated Programs or Freebies Required.
Ready to get started? Good. Let’s dive
What is Retail Margin?
“If you don’t know your numbers, you don’t know your business.” — Marcus Lemonis.
The gross retail profit margin is the percentage of revenue that remains after deducting the cost of goods sold. It doesn’t account for additional operating expenses — it’s net profit.
Your retail margin is a snapshot of the general health of your business. Moreover, it declares how much revenue is flowing to your bottom line.
In case you don’t know your average retail profit margin, then your accountant. Also, ask about operating expenses, variable costs, and cash flow.
To get yourself a general idea of your gross retail profit margin, here’s the formula:
Gross Profit Margin [%] = {(Total Revenue – Cost of Goods Sold) / Total Revenue} x 100
Here’s a simple example:
Let’s say you buy something for $1. You resell it for $2. What is your gross profit margin?
I’ll give you a second.
Did you get 50%? Well Done – This is your retail profit margin for that item.
Many retailers do not see a 50% gross profit margin. He is all right. So, what’s a good benchmark for retailers’ profit margins? Read the following to find out!
What is Considered Good Profit Margin for Retail?
Vend’s 2019 Benchmark Report reveals the worldwide average gross retail profit margin is 53%.
That percentage doesn’t tell the whole story in any case…
Average retail profit margin varies by industry. The average margin of a luxury jewelry store and a neighborhood Kirana will not be the same.
Take a look at some profit margin averages by industry:
Supermarkets, Retailers of Wine and Liquor: 26 – 29%
Women’s clothing stores: 47%
Furniture Stores: 45%
Baked goods: 57%
Sports Supply Stores: 39%
These percentages are just a snapshot of the industry average. It is possible to sell products with low-profit margins successfully – if you follow the 15 tips mentioned below.
If you want to improve your profit margin, start by reviewing your numbers regularly. Getting to your target destination is very easy if you know where you are starting from.
15 Practical Ways to Increase Profit Margins for Retailers
You have had a conversation with your accountant and comprehend your retail profit margin. You’ve checked out the average retail margin for your industry, and you have a reasonable profit target in mind.
Now it’s to dig right in! Here’s how to increase profit margins today.
1.Raise Prices
You don’t have to raise prices on every item you sell. Instead, selectively increase the cost of your most popular items. You will effectively add to your bottom line and also improve profit margins.
If you run a small business, don’t forget this: Your customers don’t know the cost of your goods. Plus, they’re buying from you for the shopping experience; The product is just a souvenir.
Pro Tip: Are you one of those lucky retailers who are buying Revengeance customers? Scarcity gives you cover to increase your prices (if you have the goods.) Don’t be afraid to do so.
2.Limit Your Area of Focus
You can’t be everything to all people – nor should you try.
Have you ever had a meal at a restaurant with a novel-like menu? There may be 200 dishes to choose from, but they are all mediocre. If you’re like me, you just adore a restaurant with 12 plates, each of which is excellent.
Last year, Wegmans cut its SKUs by 40% to avoid out-of-stock at Staples.
Think of how much profit you are making on slow-moving items. Can you devote that shelf space to faster-moving, more profitable items? Yes!
limit discount
Discounts might seem a good idea when you need to make a sale. But without a plan, mark-downs rob your earnings — and they never boost retailers’ profit margins.
Let me tell you about a friend of mine. Every time he has bills to pay, he hopes to give her followers on Twitter 30% off on the same day. He thought it was terrific. but it wasn’t!
3.This retailer didn’t know what it was:
This store owner was robbing himself of his own retail ROI. Sure, he paid his bills on time. But he also taught his customers not to shop at full price! So they’ll wait for the next tweet announcing another discount.
Discounts can work but in moderation. A quarterly promotional event is a good idea. That said, in a post-Covid world, customers are driven less by price than by security. So, limit the discount.
4.Cut the Waste to Boost Margin Profit
Are you hiring for jobs that your current employees can do?
Get a window washer? Should you pay an extra person for that?
Work with whom you have more, even if you are not yet in full staffing. Your retail profit margin will thank you.
5.Schedule Retail Employees as Needed
Do you have three employees open when you really only need two? Do you goofy every Saturday when you know you’re always slammed?
Make sure your staffing schedule is the best fit for your store’s needs. Save money as much as you can. But don’t risk losing your loyal customers to the competition just because of poor-quality service.
Pro tip: In the pandemic, more people are working from home, so the traditional thinking that Saturday is the busiest shopping day isn’t true anymore. Use your numbers to inform your scheduling.
6.No overtime – period
That doesn’t you should take advantage of your retail sales staff.
But, don’t let high-cost hourly managers fill in for entry-level hourly employees. If something comes up, use salaried employees instead.
7.Don’t Schedule for the Convenience of Your Team.
Do you want to know a retail management skill that will enhance profit margins as well? If you only need your employee vans for four hours, schedule her for four hours (even if she prefers to work eight.)
Also, if your area is still heavily hit by the pandemic, consider staggering shifts. You should keep your doors open to enhance profit margins.
8.Award of Additional Hours Based on Merit
Request the employee for more hours based on their average sales (or the number of units sold per customer).
I know you want to be a good boss, but it’s better to help a retail associate sell merchandise than to say yes to every employee’s request.
9.Hand over All Paychecks Personally.
When you look at how much each staff member takes home, the cost becomes real to you.
However, don’t just pass the check. Say thanks and show gratitude where it is due.
10.Give Bonuses When the Employee is Qualified.
Pay the bonus in proportion to the profit, not the total number of sales. Otherwise, you may end up rewarding an expressive or driverless salesperson—two personality types who use discounts to make sales, effectively robbing you of a profit.
11.Look For Theft by Matching Inventory for Sale.
A full-featured POS system makes it simple and quick to track what came in behind and went out in front – and what disappeared in between.
If you haven’t bought the software yet, there are solutions. For example, I know that a restaurant franchise finds internal theft by simply matching the number of cups received to the store to the number of drinks ordered.
12.Cut Vendors
When you buy more from fewer sellers, you’ll often get a better deal on pricing, shipping, and dating.
Ordering only a few items from multiple vendors requires more bookkeeping and tracking, plus you’ll pay top-dollar for each minimum order you meet.
Even with the unknown in business forecasting, no item is so unique that it requires countless sellers. Simplifying your ordering is an easy way to improve any retailer’s profit margin.
13.Merge Your Orders
Are other dealers buying similar items from similar sellers?
Combine orders to get freight and large orders discounts. Clarify early who is paying what, then pay before delivery to avoid complications.
14.Sell Added Value by Bundling Products
Customers in the 21st century value their time. Therefore, they will pay for valuable services related to the products you bring.
For example, Take Best Buy’s Geek Squad. They guarantee to repair any computer problem – anytime, anywhere. Of course, they leave “for the price.”
Customers don’t want the hassle of figuring things out on their own. And they really don’t want to do those things. Selling excess value is a very profitable future path.
15.Fire Unprofitable Customers
Every retail business has that customer:
1-Which needs everyone’s hand
2-Which beats you on the price and keeps calling you with time-consuming issue
If your business is large enough, ask your order desk or sales representative to provide you with the top 10 complainants. Then, match them to the profitable orders they have generated.
Even if they deliver your business in large quantities, they must pass the profit test. If they don’t, tell them this:
“While I appreciate your business, the cost of managing your account outweighs the profitability. Therefore, we must apply a fair price increase.”
How to Increase Retailers’ Margin Profit:
The Bottom Line is that most retailers evaluate operating profit margins a few times a year.
Better retail profit margins don’t just come from discounts or cutting employees. Instead, restrict unnecessary costs while increasing the number of items sold at the right price. The same goes for expensive products.
Start using these 15 tips and start training your employees and improve your customer shopping experience, too. You will be in business for years to come.