15 Ways to Increase Retail Profit Margins, Part 1
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15 Ways to Increase Retail Profit Margins, Part 1

15 Ways to Increase Retail Profit Margins, Part 1

Retailers’ profit margins have been more relevant than ever lately. It all started with curbside pickup, the only way many stores could sell their products during the Covid-19 pandemic. Now, some experts are suggesting retailers add similar programs:

This advice is well-intentioned but misinformed.

If you have the same resources as Amazon, Walmart, or Target, great! Add as many bells and whistles to your retail sales strategy as you like.

But if you’re anything like the retailers I know, you don’t have unlimited capital from stockholders. And programs like these take funding — additional costs you’ll have to compensate for elsewhere. 

The truth is, improving your retailers’ profit margin is a two-step process:

Step 1: Know your average profit margin (and a good margin to shoot for.) Don’t worry. I’ll make this process easy for you, even if you’re not a “numbers person.”

Step 2: Implement my 15 proven ways to increase your retail profit margin — no complicated programs or freebies required. 

Ready to get started? Good. Let’s dive in.

What is retail margin?

“If you don’t know your numbers, you don’t know your business.” – Marcus Lemonis

So, what is retail margin?

If you’re an accounting whiz, feel free to skip ahead. For the rest of us who could use a quick refresher on some bookkeeping fundamentals, here are the numbers you need to grow your business.

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 — that’s net profit.

Your retail margin is a snapshot of your business’ general health. Plus, it shows how much revenue is flowing to your bottom line.

If you don’t know your average retail profit margin, set up a meeting with your accountant or bookkeeper. Ask about operating expenses, variable costs, and cash flow too.

To get a general idea of your gross retail profit margin yourself, here’s the formula:

Gross Profit Margin [%] = {(Total Revenue – Costs of Goods Sold)/Total Revenue} x 100

Here’s a simple example:

Say you buy something for $1. You resell it for $2. What’s your gross profit margin? 

(I’ll give you a sec.)

Did you get 50%? Well done — that’s your retail profit margin for that item.

Many retailers aren’t going to see a 50% gross profit margin. That’s okay. So, what is a good benchmark for retailers’ profit margins? Let’s take a look. 

What is a good profit margin for retail?

According to Vend’s 2019 Benchmarks Report, the average gross retail profit margin is 53% worldwide.

That percentage doesn’t tell the whole story, though. Average retail profit margins vary by industry. A luxury jewelry store and a neighborhood grocer simply aren’t going to have the same average margins. 

Here’s a look at some profit margin averages based on industry:

  • Supermarkets, wine, and liquor retailers: 26–29%
  • Women’s clothing shops: 47%
  • Furniture stores: 45%
  • Baked goods: 57%
  • Sport supply stores: 39%

These percentages are just snapshots of the industry averages. It is possible to sell low-profit margin products successfully — if you follow the 15 tips I reveal next issue (Sept. 28). 

If you want to improve your profit margins, start by regularly reviewing your numbers. It’s much easier to arrive at your goal’s destination if you know where you’re starting from. 

Next time: 15 ways to increase retailers’ profit margins.

Published: September 15th, 2021

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