Your profit margins are a measurement of your profitability. Not only do you have to calculate them, but you have to improve them to make your business thrive. As a retailer, you should know whether your profit margins are increasing or decreasing. As you may know that raising prices and increasing sales can help increase profit margins. However, there are other effective ways you can implement to optimize your profit margins and earn more money. Here are some of them.
1. Know Your Margins Well
First things first, you must figure out your margins. Analyze the gross profit margins generated from your clients, products, ads, or services. Identify the areas on which you are getting low and high margins. By understanding your margins, you will be able to easily eliminate the parts that aren’t very profitable for your business and more focus on the ones that generate higher profit margins.
2. Avoid Markdowns
Lowering the price of a products will not increase your profit margins. Instead, it will actually prevent your business from being profitable. When you’re trying to increase profit margins, you should avoid markdowns or price reductions. You can sell more items without having to reduce the prices through better inventory management.
When you’re about to sell more items, you should conduct demand forecasting first. Figure out consumer demands and what is currently trending. By following the trend, you will gain more customers and this will certainly increase your sales. Major retailers like H&M and Zara for example, they always add new products in every season and they remain consistent with the price of their products. So, it doesn’t matter if you want to sell more products as long as you can quickly adjust to trend shifts and ever-changing customer demands.
3. Optimize the Quality and Value of Your Products
Rather than focus on price, you better focus on the quality of your products. Optimizing product quality will help you dominate the market. Better quality can help you bring in more sales. Your existing customers won’t be surprised if you set higher prices, because they’re most likely choose quality over price.
If you’re confused as to how to improve your product quality, at least make your products more relevant to consumers. You can take an example from the beauty retailers. They’ve always had some of the best margins in retail, because they’re very good at creating personal and emotional connections with their customers. So, consider focusing on the emotional and lifestyle values that you can offer through your products.
4. Save Money on Your Expenses
Your profit margins will be difficult to be increased if you can’t reduce your expenses. You have to figure out the number of items you should buy from your suppliers. Forecasting needs to be done to avoid excessive or unnecessary stocks. Consider using a purchasing management system to keep your purchases and procurement under control.
Another way to reduce expenses can be done by negotiating with your suppliers to give you discounts. In order to get the best deal, give them some equally profitable offers, such as bigger deposits or bulk orders. If you want to take things to another level, you can build stronger relationships with your suppliers through partnerships or collaborative projects.
5. Boost Your Average Order Value
Increasing your average order value from your existing buyers will help increase your profit margins. When you see a few visitors in your store, you should be able to figure out how they can add as many items as possible to their carts. Train your staff to convince your visitors to buy additional items that are relevant to the item they’re buying. Another way is to put your most profitable products in strategic places, such as in shop window or at the cash register.
6. Utilize Offers More Smartly
If you feel like you have to discount your products, then you have to do it smartly. Discounting is very tricky. The best way to do it is by personalizing your offers. Your customers have different needs and preferences, so it would be best if you could offer them tailored discounts.
Maintain your customer details well and track their past purchases. You will get to figure out the type of offers that are most enticing to each of your customers. Send your special offers via personalized messages. Not only will this strategy increase your chances of conversion, but it will also optimize your profit margins.
7. Automate Your Operations
Don’t just focus on pricing strategies when you’re looking for ways to increase your profit margins. Start to focus more on streamlining your business processes and saving on operating costs. Figure out activities that take up the most time, effort, and operating costs. Find ways to make them simpler and more efficient. Using an automated solution will greatly help you simplify complex and repetitive processes.
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