As a retailer, your profit margin is a metric that should always be on your radar as it answers critical questions about your business and highlights if you’re pricing your products correctly and actually making money.
In our recent study of over 13,000 retailers, we found that the average gross profit margin globally for retailers is 51 per cent. This is about the same for Australian retail stores. And, on average Australian retailers’ monthly revenues were 18 per cent higher than the global average, 17 per cent higher than North American retail stores and 37 per cent higher than those in the UK―showing a stronger spending trend for Australia’s local stores compared to other overseas markets.
So how are these retailers finding such success? Here are five practical tips you can use to increase your profit margins.
1 Avoid markdowns by improving inventory visibility
Markdowns are notorious profit killers, so avoid them whenever possible. Start by improving how you manage your inventory. You should always know what merchandise you have on hand, as well as what your fast and slow-movers are. This will help you make better decisions around purchasing, sales, and marketing, allowing you to sell more products and reduce the need for markdowns.
2 Elevate your brand and increase the perceived value of your merchandise
It’s interesting to see that cosmetics retailers have some of the best margins in retail. One reason behind this is the fact beauty and cosmetics brands excel at creating personal and emotional connections with customers. Can you find similar ways to increase the perceived value of your brand? Perhaps by focusing on the lifestyle values that your merchandise can offer.
3 Streamline your operations and reduce operating expenses
Don’t just focus attention on ways to increase profits, start with trying to streamline your operations and reduce costs. Minimise spending on non-essential items such as expensive shopping bags and tissue fill. If you’re not using an efficient point-of-sale to tie inventory, sales, and marketing under one system, consider making a switch to a low-cost cloud solution.
Another great way to streamline your operations is to automate specific tasks in your business. By putting repetitive activities on autopilot, you can reduce the time, manpower, and operating expenses required to run your business.
These days, there’s (usually) an app for most of the tedious administrative tasks in your store. If you regularly make appointments with customers, for example, consider using an app such as Timely, which streamlines bookings and sales, and even sends automatic appointment reminders to your customers. Do you spend a lot of time managing employee shifts? Check out Deputy, which lets you and your staff coordinate schedules from your mobile devices and sends shift changes and notifications for you.
4 Increase your average order value
Increasing the basket size or average order value from shoppers already in your store is a great way to improve your profits. You’ve already invested in getting them to your location; now go and find ways to maximise their spend. Start with upselling and cross-selling. Strategic product placement in-store can also assist with this. Find your most profitable products and position them in high-traffic areas of your store.
5 Optimise vendor relationships
To reduce supply chain costs and inefficiencies study your supply chain and find ways to get a product from the factory to the customer with less friction, complexity and cost. Strengthen your relationships with vendors and determine how you can work better together. Doing so could help you identify ways to reduce product costs and operating expenses. Or, at the very least, it could improve your workflow and productivity.
You don’t always have to make drastic changes in your business to significantly improve your bottom line. It’s all about looking closely at your business, staff, and product performance, and making small tweaks to get the most out of your store.
By Francesca Nicasio, retail expert, Vend