Profit: The Real Performance Metric
Doug Hall, an author, aptly summarizes the importance of profits – if profits are not rising, your business is not thriving. Also called bottom line, profit is the real measure of how well your business is doing.
Revenue or top line may give you the broad level picture of where your business is headed. But, it is the profitor the bottom line that answers the simple and basic questions – will my business survive. If yes, will it thrive?
By its very nature, the retail industry is detail oriented. This is because there are countless products and innumerable customers. They say, the devil is in the detail. This was never truer than in the case of the retail industry! It is easy to lose your way in the devilish details. Which is why, you must always be aware of ways to increase profit margins in the retail industry.
5 Ways to Increase Profit Margins in the Retail Industry
Average profit margin in the retail industry is 53.33%. Therefore, all your efforts must be directed towards getting the profit margin at or above this level. Generally speaking, the ways to increase profit margins in any industry are as follows:
- Minimize costs
- Price products appropriately
- Find more customers through targeted marketing strategies
- Retain loyal customers
- Cut waste
Here is a detailed discussion on the five best ways to increase profit margins in the retail industry:
1. Fine Tune Your Business Operations: for streamlined workflow in all areas of your store. This includes:
- Adopting the Best Inventory Management Practices: Practices that enable you to know exactly which items you have in the inventory and in what quantity. If you are using inventory management software, it will give you an idea of which products sell like hot cakes, which are moving slow, and which do not sell at all.
You can then place orders smartly based on this knowledge. For every square inch of space saved in the warehouse, your profits will rise. Moreover, you can look ahead and order merchandise before their high demand season begins. This way, you will never face shortage and your customers will never be disappointed.
- Reducing Overtime: Because overtime payments will drill deep holes in your pocket that stores your profits. Do your due diligence and record how much time is needed for each operation. Allot work based on employee traits so that their productivity is maximized and they don’t have to work beyond the regular operational duration.
- Right-sizing Your Workforce: You don’t have to hire 10 workers if you need only 7. Do the calculations. Having more employees than necessary lowers the workload way below the optimum level and creates a culture of laziness. It also escalates your payment liabilities.
- Automating Repetitive Operations: Data entry and other cumbersome administrative operations often consume a significant time. This might require you to integrate different systems. For example, menswear retailer Crane Brothers blended their accounting software with point-of-sale software for automatic data transfer from the latter to the former.
Retail software and POS software are a great way to increase profit margins in the retail industry. This is because the software free you from the diligent and somewhat cumbersome process of record keeping. By doing so, they deliver at your fingertips tons and tons of precious data that you can strategically leverage to increase your profit margins.
2. Employ Lucrative Pricing Strategies: This includes strategies such as, smart discounts and value pricing of products:
- Smart Discounts:If you have to offer discounts, ensure they are smart discounts that deliver value. There is absolutely no point in providing hefty discounts that are going to eat into your profit margins. You can offer tailored discounts to each set of customers based on how much they purchase from you. Or based on the percentage of discount they will need to boost their purchase volumes.
- Value Pricing of Products:You can even increase the price of your products if you have planned ahead and ensured their availability in the high season. This is when most other stores are likely to run out of them. As we shall see later, such a strategy can also boost your brand in the eyes of customers.
3. Build Your Brand for Great Rapport with Customers: Customer is the king in the market. The more you impress them, the more likely they are to turn into loyal customers.
Research indicates that cosmetics brands usually have the highest number of loyal customers in the retail industry. Why? Because they make people feel good! Try and understand what makes customers feel good about your store.
Do they like the service? Or are they impressed by the ambience? Is it the availability of merchandise even during the high demand season? Or are they in love with the personal touch you provide?
Understand the reasons and built on them. There is no customer better than a repeat customer. This is because it costs less to make them visit again. Moreover, they will suggest your retail store to others.
You can also cross-sell and up-sell to loyal customers. Cross selling is offering an affordable and related product to a customer who is checking out. Up-selling is the same as cross selling except that you offer an expensive product.
They may also provide you with invaluable insights in the retail industry through their recommendations. In the age of knowledge, such insights could make a huge difference to your value proposition.
4. Excellent Relations with Minimum Vendor: This measure to increase your profit in the retail industry is linked with excellent inventory management, building vibrant customer rapport, and putting excellent pricing strategies in place.
With great vendor relations, you are able to get orders delivered quickly and precisely. Plus, with only a few vendors, you are able to place bulk orders that enable you to ask for discounts.
Combine this with careful planning of orders and provide the vendor an opportunity to secure discounts. The vendor can pass a large chunk of these discounts to you. This won’t be an issue with healthy vendor relations.
With your inventory optimized through such systematic supply chain management, you will never run out of in-demand items. Neither will you waste space on items that do not sell and impose additional burden. Through all this, your customers will never complain of non availability and keep coming back.
5. Go Locally Online: With the world migrating to the digital platform, there is no reason why you should hold back. Even if you are not selling your merchandise online, make sure you have a presence on the internet. Mention your inventory. You never know whose eye you may catch.
Internet presence can be a great alternative for physical presence that requires you to open a second store, a costly enterprise indeed! By restricting online orders to local customers at least during the early phase, you save on expenses that would otherwise be needed for long distance deliveries.
In an age of cutthroat competition, staying ahead of your rivals is no mean feat. But it’s not too tough a task either. Through careful planning and systematic implementation, you can make a fortune, literally.
