8 Ways retailers elevate their growth
Profit margins are a metric that retailers should always keep on their radar, and for good reason: they let you know a lot about your business. Knowing when and why you're in the black, along with how effectively you're pricing your products, is critical to sustainable growth. But of course, your profit margin isn't something you just measure or track - it's the livelihood of your business, and a metric that should constantly be analyzed and improved upon.
The average gross profit margin in retail hovers somewhere around 51%. This number varies by both region and industry, with jewelry and cosmetics on the higher side, and alcoholic beverages and sporting goods on the lower end. With that in mind, here are 8 strategies you can employ to increase your profit margins and see your company soar.
1. Improve Inventory Visibility & Avoid Markdowns.
Markdowns are notorious for killing profit margins, so use them wisely and avoid them wherever possible. This can be achieved by maintaining a well-managed inventory. By using tech to know how much of each product you have on hand, and which ones are selling best, you can make more informed decisions about marketing, purchasing and sales. With 100% visibility, you can sell more products and minimize the need for markdowns.
2. Elevate Your Brand & Increase Your Value
As we mentioned above, cosmetic brands achieve some of the best profit margins in the retail industry. One reason for this is the fact that cosmetic retailers excel at appealing to customer emotions, particularly around status and lifestyle. They make personal connections and foster strong loyalty among their base, creating a sense of exploration through their merchandise. Brands with products that can make people feel better about themselves can often charge more premium prices. Through dedicated brand management, a good CMO can differentiate their business from the competition, increasing perceived value and profit.
3. Streamline Operations & Cut Costs
While retailers often focus on product pricing strategies when looking for ways to increase profit margins, it's advisable to start by streamlining operations and lowering your overhead. You should begin by cutting overtime and excess personnel as much as possible, then turn to areas of waste. Minimizing supply and utilizing an efficient point-of-sale system will make an entire staff and store run more smoothly and cost-effectively. Another way to streamline your business is by automating repetitive tasks, employing tech to reduce manpower, time, and operational expenses. And it doesn't have to stop at data entry - these days, AI-powered solutions can put most of your store's tedious administrative tasks on autopilot.
4. Increase Average Order Values
Another great way to improve profits is by boosting the average order value (AOV) for customers already in your store. You've already done the heavy lifting of getting them to your location, so try to maximize their spend as much as possible. You can start by
finding products that are often purchased together: when a customer selects something, suggest relevant items they may also be interested in buying. Placing products strategically in store can also help increase AOV. Your best-sellers should be placed prevalently in the shop window and the most visible areas of your store and upsells should be put near the checkout counter for impulse buys. Suggestive selling will help you sell more of your most profitable items, further aiding your bottom line.
5. Be Strategic About Purchasing
Whether you're negotiating with suppliers or scouting a trade show for new products, make sure you're always looking for ways to lower costs. One way to do this is by thinking about the final cost and working backward. Once you have the final figure, either set a price that's profitable or move on to something else. You can also ask vendors for discounts or other offers, which works particularly well when buying in bulk quantities.
6. Hike Up Your Prices
Raising prices will let you make more money on each sale, widening your profit margins. But CFOs should do so with care and deliberation: it's best to take a hard look at your company's products, margins and customers, and run the numbers. Test out price increases on select products, analyze the results, and adjust from there. But you might also want to get creative with your price increases - using psychology and tiered pricing methods can boost sales and bolster your bottom line.
7. Encourage Your Staff
One way to improve margins is by increasing the productivity of your current staff. Regardless of the kind of business you're running, it's likely your staff isn't working as hard as they can - which isn't always their fault. Companies lose a significant amount of their productivity to a concept called organizational drag- the processes that take up valuable time and slow a business down. As such, it's vital that you take analyze your store's existing structures to make sure they're not keeping your employees from getting things done. Once you have the right procedures and tech in place, you can shift focus to training and empowering your team to do their best work. This could mean setting the right sales targets, educating your team on suggestive selling, training on upselling and cross-selling, and implementing best practices to improve performance and profits.
8. Identify & Eliminate Waste
By identifying your store's areas of waste - and eliminating them - you can save money and contribute to your bottom line. The many types of waste that cost businesses money include defects, overproduction, unplanned downtime, not utilizing talent, transportation costs, excess inventory, and much more. By going through each of these areas and finding out how they apply to your business, you can find ways to reduce or eliminate them.
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