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How to increase profit margins in business

How to increase profit margins in business

Profit margin is something that you should always keep a measure of if you want to make good money in your business, and this depends directly on the way you are pricing your products.

Keeping a keen eye on the profit margins will help you to know whether your company is on the right track or not. Pricing your products correctly and improving the profit margins continuously will help you increase your business and it will not just stand strong but will thrive in all situations.



If we compare the data across regions, we will find that there are not a lot of variances in profit margins, with the exception of the UK which leads slightly at 53.12% while according to study of 13,000+ retailers, the average profit margin in retail is 50.96%.

When the data was collected across multiple industries, it was found that the difference in margins was much greater. Some of the industries with the highest profit margins were beverage manufacturers, cosmetics, and jewelry stores, with 60.68%, 57.94%, and 56.80% profit margins respectively. Meanwhile, the industries with the lowest profit margins were alcoholic beverages, electronics, and sporting goods stores with margins at 38.91%, 39.31%, and 42.09% respectively.



With a rough view of the amount of profit that the retailers are enjoying, it will become easier for you to aim at increasing the profit according to the industry you are working in. The market is full of tricky ideas that many people use to increase profit in business, but if you really want to have a thriving business, you should follow these 8 rational ideas on how to increase profit margins in business.

1-Improve inventory visibility to avoid markdowns

Markdowns are great profit killers, so if you are able to avoid them, you can make good money in business. The question that arises here is how would you avoid these markdowns in order to know how to increase profit margins in business. Here, you have to start by improving the way you manage your inventory. You should always be at the top of the things like what merchandise you have on hand and what your fast and slow movers are. By keeping a handle on all this, you will sell more products and reduce the need for markdowns by making better decisions around purchasing, sales, and marketing.

According to the founder & CEO of Retail Reflections, Andrew Busby, “One way to maximize margins which also has other significant benefits is to have 100% visibility in inventory. By doing so, this minimizes markdowns and thus margin erosion. Zara is a particularly good example of this. Another way to maximize margins is to have an effective product information management (PIM) system.”

2- Increase the perceived value of your merchandise and elevate your brand

One of the most interesting facts is that cosmetics retailers are the ones who have some of the best margins in retail. Experts have concluded that cosmetics brands are excellent in creating personal and emotional connections with customers and this becomes the main reason behind the best margins of the face beauty and cosmetics brands. If you want to know how to increase the profit margins is business, you should find ways to increase the perceived value of your brand. Focus on the emotional and lifestyle values that your merchandise can offer in order to increase the profit margins in business.

According to the editor of the Retail Dive, “beauty is a category on fire…The price value equation is quite good, cosmetics make people feel better about themselves and foster strong customer loyalty, and the merchandising creates a sense of exploration…”

Instructional Designer of Merchant Math and Founder of Merchant Method, Chris Guillot says, “cosmetics brands do a great job with brand management, playing to their customer base at an emotional level – Status and lifestyle. Retailers of all sizes and stages of growth can focus on their unique brand positioning as a way to differentiate from their competitors and increase perceived value.”

3- Reduce operating expenses and streamline operations

Automating specific tasks in your business is a great way of streamlining your operations. Put repetitive activities of autopilot in order to reduce the time, manpower, and operating expenses required to run business. There are many tedious tasks like data entry that you can automate. There are apps that can do many of the tasks in your store. Apps like timely can be used to can streamline bookings and sales, moreover, it even sends automatic appointment reminders to your customers. If you spend most of the time in managing employee shifts, you can use Deputy, as this lets you and your staff coordinate schedules from the mobile devices and send shift changes and notifications.

According to a Retail Analyst at Krista Fabregas, “Retailers often focus on pricing strategies when searching for ways to increase profits, but most should try to start with streamlining operations. First cut overtime and excess staffing as much as possible, then focus on areas of waste. Minimize supply: spend as little as possible, and ditch the fancy printed shopping bags, tissue fill, and excess packaging wherever possible. If you are not using an efficient point-of-sale to tie inventory, sales, and marketing under one system, consider making a switch to a low-cost system. This makes your entire store and staff run more efficiently.”

4- Increase the average order value

Increase the average order value

One of the best ways of improving profits in your business is increasing the basket size or the average order value(AOV) from the shoppers that are already in your store. It is certain that you have invested a lot of money in getting them to your location, now the next step is finding the ways that will maximize their spend. To do it, you have to start with up-selling and cross-selling. Putting the best sellers and up sells near the counter for impulse buys will increase average order value.

According to the head of SEO at Eastside Co., Matthew de Noronha, “someone who makes a purchase from you has already been qualified. They have engaged with your brand and, while it may sound obvious, they are significantly more receptive to offers and product advertising. For that reason, it makes complete sense to encourage them to spend more.”

Another way of increasing the AOV is strategic product placement in-store. Director of Decorelo, Adam Watson recommends, “your most profitable products in the shop window and in the best area customers naturally go to in the store so as many eyeballs see them as possible.”

5- Implement shrewd purchasing practices

If you are looking for new products at a trade show or at a negotiating table with your suppliers, one thing that you should take care of is always finding ways to lower the costs.

  • The final cost

According to business coach Lindsat Anvik, the best way to do this is to, “approach products by factoring in the final cost (i.e., wholesale cost, taxes, shipping, etc.). Once you have that final figure, ask yourself, ‘Would I pay X for this?’. If you wouldn’t, you need to find a way to lower the cost or move on from the product.”

  • Order quantities

In case, you need to raise your order quantities for a particular item to lower its price, you could look at your inventory and determine if you could afford to order some of the items in bulk, and if not, would it be possible to consolidate orders for other items to increase your buying power?

For quite some time now, many large retailers have been doing this. Explore more and more options, run them by your suppliers, and see if you can negotiate better deals. Don’t stick onto anyone, if someone is not providing you agreeable deals, check out other vendors to find out if they have more favorable terms to offer you. Moreover, make sure that your existing suppliers are aware of the fact that you are reaching out for others in order to get better deals, this can help you as they can end up giving you better rates in order to stop you from purchasing from others.

6-Increase the prices

Price increase and Creativity

Raising the prices directly helps in widening the profit margins and improves the bottom line by enabling you to make more money on each sale. However, many retailers fear that if they will increase the prices, they will probably lose their customers, but the truth here is that everyone needs to look into their business and run the numbers because there is always a sweet pricing spot. If you are in a dilemma of how to increase the profit margins in business, you should carefully price your products, depending upon the margin, customers, and products of the company.

Above all, check out the basics like the price sensitivity of your customers, the state of the economy and the competitor pricing. Consider the type of customers you want to attract. The shoppers are the ones that would take their business elsewhere because they would get an item at a lesser price, but the customers don’t base their purchase only on the price. These external factors play a major role in pricing and increasing the price of the products.

Do your math by taking all these things into consideration. After increasing the price on a few products at a time, note down the customer reaction, if everything seems fine and you note an increase in the profit margins, apply this on all of your products.

  • Price increase and Creativity

You can always make your prices more appealing and attractive by implementing creative and psychology tactics when you are coming up with increased prices. For instance, incorporating tiered pricing into your strategy is a great way of making your offer more attractive for the customers.

7-Manage vendor relationships

Manage vendor relationships

Negotiating better contracts with the suppliers will help in reducing the cost of the goods and simultaneously widen your margins. On the other hand, another step forward in this is building stronger relationships by working even more closely with them.

  • Joint business planning

Co-founder and CEO of Conlego, Daniel Duty, says that engaging in Joint Business Planning with vendors, “is a collaborative tool whereby profit goals are agreed to, and initiatives are developed to help reach goals. In other words, both sides help each other become more profitable.”

  • Supply chain costs and inefficiencies

The supply chain is always full of inefficiencies and huge costs, reducing it is a step further in knowing how to increase profit margins in business.

Daniel adds that “Retailers should study their supply chain to figure out where there are unnecessary costs. For instance, shipping product in less than a full truckload is more costly than when it is full. Making many deliveries each week to a store is more expensive than just one. Retailers should ask their suppliers if they are doing anything that is adding to costs to the supply chain that could be stopped.”

8- Smartly discount the products

Discounting is typically against the traditional advice on profitability, but if it is done right, it could work for your advantage.

  • Personalized offers

The most important thing that you need to keep in mind while giving discount offers is that not all the customers are wired in the same way. On one hand, some will need 20% off incentive to convert, on the other hand, some don’t require a lot of convincing. So, instead of offering large fit-for-all discounts, identify how big discount is necessary to convert each customer.

Personalize your offers on the basis of the preferences and behavior of your customers. This will not only help in increasing customer conversions but also increase the profit margins.

  • The right time

The right time

Don’t hold the products for too long. There is a fine line between too soon and too late, and if you hold onto the items for too long, you will have to sell them at much deeper discounts.

Keep your store fresh, eliminate the waste and inspire your team. Apply each one of the above tactics according to your business needs and see what wonders these can do for you in increasing the profit margins in business.


Atul Garg

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