Show Me the Money: 10 Tips for Improving Retail Profit Margins

Is there a huge gap between your store’s gross and net profits? Discover 10 ways you can improve your profit margins through these best practices.

The retail industry is one of the toughest in the American economy. There is no average profit margin for this diverse industry. Even the biggest players post net profits of just two or three percent.

Some people are discouraged by these numbers. You see a challenge. You find yourself asking what you can do to improve your profit margins.

As it turns out, you have plenty of options when it comes to boosting your margins. We’ve rounded up ten of the top tips to help you bulk up your margins and drive your retail business to success.

1. Raising Prices Raises Profit Margins

This is the most obvious tip on the list, yet it’s one retailers tend to avoid. You might think raising prices will scare your customers off or keep them from buying more.

That’s why you need to be smart about price increases. Crunch the numbers and see if you can determine a pricing “sweet spot” for your clientele. Don’t forget to factor in your costs, as well as external factors like competition.

Finally, think about the customers you want to attract. Are you sure you want to sell to those who would jump ship because they had to pay 50 cents more?

The long and short of it is a higher price translates to a higher profit margin. Raising your price is the surest way to increase your margins.

2. Improve Your Brand Profile

If you’re concerned about raising your prices, you might want to consider your brand profile for a moment. Who are you to your customers?

If you’re the discount option, then raising your prices might not be a smart move. If your customers see your store as a luxury experience, they have different ideas about what you do.

If you don’t have a solid brand identity yet, it’s time to put some thought and effort into creating one. Focus on your customer service or the brands you carry to communicate a clear identity.

3. Streamline Your Operations for Better Margins

When retailers ask how to maximize profit, they do tend to focus on pricing strategies. You’ll come out ahead if you ask about your own operations instead.

The formula for how to find a profit margin requires subtracting your overheads. Everything you do, from staffing your store to turning on the lights, adds to those expenses.

By streamlining your operations, you can reduce your overhead expenses. Reduce overtime when possible. Make sure any solution you adopt is delivering high value for your business.

4. Improve Your Displays and Avoid Markdowns

The number one reason merchandise doesn’t move is because of the way it’s displayed. Customers may not be able to find the product if it’s tucked away in a corner of a crowded shop. They may not even want to spend time in your shop if it feels too crowded.

Better displays improve the visibility of your merchandise. They can also entice customers to stay and browse longer.

If you have several store locations, merchandise compliance is important for improving displays. It also enhances your brand image. If each store displays merchandise the same way, you’ll improve the customer experience.

5. Be Smarter about Your Own Purchasing Practices

The final price you charge for any item in your store reflects the price you paid for it, plus any extra costs. Those additional costs might include shipping, as well as your overhead expenses.

When you’re purchasing products for your store, be sure to factor in those costs. This will help you arrive at the total cost. Then you can apply your markup.

Once you’ve arrived at this price, ask yourself if you’d pay that price. If not, it’s time to see if you can negotiate a better price from the supplier.

6. Work with Your Suppliers

If you’re wondering how to increase the profit margin for your store, you might want to look to your suppliers. Are you working with them to negotiate the best prices?

There are several things retailers can do to improve the prices they receive. One thing is to negotiate discounts with suppliers. Another is to increase your order quantity to receive bulk discounts.

Finally, be smart about who you buy from. If a supplier doesn’t deliver good customer service or quality products, cut them from your list.

7. Increase the Value of Your Customers

Did you know it costs six times more to get a new customer than to keep one of your existing customers? Existing customers also tend to increase in value over time. They often make repeat purchases, and the value of their purchases increases.

You can increase your profit margins by upselling and cross-selling to existing customers. Another way to increase their value to you is to have them act as brand ambassadors. Ask them to give referrals or review your store online to help generate more leads.

8. Use Discounts Wisely

For any product in your store, you’ve likely asked yourself, “What is a good profit margin?” You’ve factored in all your overhead costs, and you’ve discovered what you think is a good margin for the product.

For that reason, many retailers don’t like to use discounts. If you can avoid using them, that’s one way to keep your profit margins high.

Sometimes, you’ll have to put a product on sale or offer customers a discount for loyalty. If you have to use discounts to incentivize purchases, make sure you do it wisely. Try to personalize offers to increase the chances people will cash in on them.

9. Focus on What’s Already Profitable

It makes sense to focus on existing customers because they’re already profitable. Potential new customers are more of a gamble. They might be worth a lot, or they might only drive up your costs.

The same is true of products and even sales channels. If you’re known for a particular product, focus your efforts on promoting that product. If most of your customers find you on social media, then focus your marketing efforts there.

10. Discover Your Optimal Inventory Levels

Once again, you’ll want to look at your operations and seek ways to streamline them. Maintaining optimal inventory levels is one good way to improve your profit margins.

If you don’t have enough inventory on hand, you could miss sales. If you stock too much merchandise, you might end up reducing the price to get rid of it. Maintaining inventory comes with its own overhead costs, such as the cost of storage.

Crunch the numbers and discover optimal inventory levels with data analysis. This will help you make sure you meet every sale, but also minimize your costs.

Get Ready to Grow Your Retail Business

These ten tips can help you improve profit margins for your retail business. With higher profits, your business can continue to grow and expand.

If you’re looking for more tips on growing businesses or making money, be sure to check out the blog. We have plenty of tips to help you find success.