8 Effective Ways to Increase Profit Margins in Retail
Making a profit is the ultimate goal of any business, and retail businesses are no different. In order to stay in business and keep your doors open, you need to find ways to increase those profit margins.
However, running a retail store and aiming for a higher profit margin requires not just planning but also a lot of hard work. Retailers need to understand whether their customers are growing, declining, or remaining the same. As a result, you’ll be able to develop your ability to keep on top of things.
In this guide, you’ll learn these three things:
- What does profit margin mean?
- Why should you care?
- Tops ways to increase profit margins in your retail store
Keep reading to find out more!
Why Should You Care About Retail Profit Margins
Because of the worldwide effect of the pandemic, the retail industry has experienced an enormous shift. Previously, customers used to shop for particular products at a variety of specialized stores. However, nowadays, shoppers frequently purchase everything from food to clothing in a single store.
As a result, this retail development brings with it more competition. Being competitive to draw clients while making sure the retail store makes enough money from each sale is how profit margins are managed.
Profit is a necessity for all retailers. The ratio between a product’s cost base and its selling price is known as the profit margin. Additionally, to evaluate the overall health of the retail store, however, one looks at the net profit margin. The amount of money a business has made is determined by subtracting all business expenses from revenue.
Increase Retail Profit Margin With These Eight Ways
As a retailer, it’s important to know how you can increase your profit margins. With slim profit margins, even a small increase can make a big difference to your bottom line.
Here are ways to do that:
1. Evaluate your product mix
See what is selling, what isn’t selling, and what margins you’re making on each type of product. Based on this information, you can make adjustments to the items you carry in stock, as well as the quantities of each item. You may want to sell more of these items or promote them more prominently in your store.
If selling items is making your retail store hard to achieve, might as well try exploring a solution for this. One of the best available is Zone Analytics. With Zone Analytics, retailers can discover your best and worst-selling products, which is through optimizing your product placement.
In the Zone Analytics dashboard, you can see zone counting and zone dwell time metrics that you can use to improve transaction and sales rates. Additionally, you can export the data to the V-Count business intelligence platform (BIP) as easy-to-understand reports.
2. Reduce cost
Reducing costs can be achieved by following these three ways:
- Optimizing operations
- Cutting unnecessary expenses
- Negotiating better deals and terms with suppliers
Reduce excessive expenditure and use less expensive supplies to cut costs (as long as you don’t sacrifice quality). Moreover, check to see if you can automate any of the daily duties that you and your employees perform.
On the flip side, if you’re looking for software to optimize your retail operations, consider a Business Intelligence Platform (BIP). With our software BIP, retailers can optimize store performance by scheduling the right amount of staff to ensure customer satisfaction and prevent lost sales. They can utilize the data to forecast traffic trends, peak hours, and staffing levels. Additionally, they can optimize operations by aligning staff and customer-to-staff ratios according to busy and unbusy hours.
Remember, a successful retailer will likely use a combination of both cost-reduction and revenue-generation strategies to maximize profits. So, seek out solutions that can handle them for you.
3. Be smart in your pricing strategy
Are you charging too much or too little for your products? Is there room to increase prices without pricing yourself out of the market?
Of course, increasing your prices is one of the most obvious ways to boost earnings. It makes sense that many retailers are wary of doing this. However, not all buyers will be seeking out the best deals.
Here are pricing strategies to consider:
- Cost-plus pricing. This is the most common strategy most business retailers use. To do this, simply add a percent-based markup to the product cost. Then, you’ll know what to charge.
- Value pricing. This strategy looks at the perceived value of the retail product or service. In other words, it considers how much shoppers will benefit from what you’re offering while considering less quantifiable factors.
- Price skimming. This implements high prices and lower prices over time. Price skimming is good for shoppers who are the first to try the products.
- Penetration pricing. This is where you initially charge lower prices than your competitors. After that, you gradually increase the price as your market share grows.
- Competitive pricing. If you’re mostly targeting price-sensitive retailers, consider this strategy instead. In short, competitive pricing is when you keep prices lower than your competitors.
- Bundle pricing. With this strategy, you give options to your customers at a lower price of buying two or more products than just buying one alone or separately.
- Premium pricing. This is when you keep your prices higher without thinking of making them low. Or this means charging more than your competitor, which can make your retail brand more attractive.
Try to be innovative if you increase pricing. The “best” selling price must be market- and cost-driven; it should be both high enough to pay expenses and enable you to turn a profit and cheap enough to draw in customers and increase sales volume.
4. Improve your inventory visibility
When possible, avoid markdowns because they are good for decreasing profits. If you’re not quite familiar, markdowns are the strategy to reduce your selling price. Having said that, these markdowns tend to be permanent reductions and can give you so much pain while trying to gain profit.
So, how do you accomplish that?
Initially, work on a better inventory management system. This will help you keep track of what’s in stock, the number of employees, and how much each product costs you. You will be able to sell more products and minimize the need for markdowns because of these better judgments regarding purchases, sales, and marketing.
Remember, too much inventory ties up capital that could be used elsewhere, while too little can result in lost sales.
5. Focus on customer retention rather than acquisition.
Every shopper loves to shop in a retail store that values its presence. In fact, if you feel unsatisfied with the products, even with their customer service, you’ll not go to give that store a go.
This is what you should think of! As a retailer, you must remember that customer retention is better than considering your acquisitions. Here are the things you should do:
- Improve customer service. Excellent customer service is one of the best ways to differentiate yourself from the competition and build customer loyalty. Improve your customer service with our Queue Management solution. This V-Count’s smart queue management system minimizes the time customers spend waiting at checkout queues to provide the most effective customer service and increase sales.
- Focus on quality. Customers are willing to pay more for quality products, so focus on stocking your shelves with high-quality merchandise. This will not only increase your margins, but it will also build customer loyalty in the long run.
- Train employees on upselling techniques. Encourage employees to upsell customers by offering them commissions or bonuses for hitting sales targets. Or giving them a loyalty program can help you increase customer retention and encourage customers to spend more money with you.
By doing that, you’re one step ahead of other retailers. As such, you’ll double up your profit margin.
6. Implement more savvy selling techniques
Make sure you’re constantly looking for methods to make a profit, whether you’re at a retailer inspecting new items or at the bargaining table with your suppliers.
Take this as an example:
Suppose you want to increase the quantity of an item you order to bring down the price. If this is the case, you could review your inventory system to see if placing bulk orders for specific items is feasible.
Numerous retail stores have been engaging in this practice for a while now. So, you could consolidate purchases and increase their purchasing power, too.
7. Invest in marketing and promotions that generate a positive return on investment
Are they generating a good return on investment? If so, what could your marketing efforts follow in order to generate more profit margin?
You don’t need to think about it. We’ll provide tips for you. So, read on!
- Offer exclusive products or services. By offering products or services that are not available at other retailers, you can create a sense of exclusivity that will lure customers to your store. This can be anything from unique clothing designs to hard-to-find items.
- Offer add-ons and extras. Upselling is a great way to boost profits, so offer customers add-ons and extras that complement the items they’re already buying. For example, if someone is buying a dress, offer them the option to purchase a matching scarf or handbag.
- Focus on discounts and coupons sparingly. If you offer too many deals and coupons, it will eat into your profits. Instead, offer them sparingly and make sure they’re targeted at your most loyal customers.
- Have a clearance section. Everyone loves a good bargain, so make sure to set aside some space in your store for clearance items. Just be sure to rotate the items in your clearance section frequently, so it doesn’t become stale.
8. Leverage technology
Handling a retail store or any other in-store, shopping mall, or library is not that easy. If you think you can’t handle people counting and KPIs in your physical locations, the best solution is V-Count.
V-count has both hardware accuracy and software insights. Each of them helps you drive your business growth through visitor analytics. This means that using a V-count people counting sensor and solutions, you can analyze visitor traffic and take action to generate revenues based on data.
Here are the three technologies V-Count offers that may be helpful for you:
- Ultima AI – This is one of the most popular people-counting sensors on the market. Ultima AI offers features like easy plug & play setup, night-vision, and an all-in-one approach to meet all the needs in your store.
- Ultima GO – This technology is good for transportation and small and medium enterprises. If you think your business belongs here, you can benefit from the advantages of people counting data and insights. V-count’s Ultima GO technology detects and also counts the visitors entering and exiting your physical locations. Aside from that, this technology is good even in zero light conditions, plus provides up to 99.9% counting accuracy.
- Business Intelligence Platform – After getting data from Ultima Go, people counting data is then sent to this software. This means you can use the Business Intelligence Platform (BIP) to easily access and view the traffic data and take action to grow your business. You can see it under the “Campaigns”, in which you can enter the data of your marketing, plus compare the success with each other. There are other features like Staff Exclusion and Queue Management to help you capture the complete customer journey.
In simplest terms, V-count technologies can complete them more effectively than your internal team. Click below to get superior services, saving you money.
The retail industry has become popular in recent years. By following the tips above, you can effectively increase your profit margins in retail.
With careful planning, you can find the right mix of strategies for your business to increase profits. Don’t be afraid to try new things and think outside the box – sometimes, that’s what it takes to succeed in retail.
If you love to increase your retail business’s profit margins and enjoy greater success in the years to come, you can contact us directly! We’ll be happy to help you take your retail business to the next level!