Fmcg Retail Tips & Trends about How to Increase Your Profit Margins


How to Increase  Profit Margins In Fmcg: Top Strategies to Improve Profitability

The fast-moving consumer goods, or FMCG, are everyday items that the average consumer uses regularly. Most of these products are very cheap to buy and include products like shampoo, soap, and coffee. FMCG products are much in demand, and the industry is estimated to be worth almost $5 trillion.

As the industry grows at a steady pace, it is predicted to reach $7 trillion in 2025. FMCG segments are believed to be among the most competitive segments in this market. In the FMCG sector, multiple big companies, such as PepsiCo, Hindustan Uniliver, and P&G, have been dominating for decades.

Products like these are fast-moving because they are a necessity in everyday life for most people and are typically consumed quickly. As a rule, FMCG products have very thin profit margins, but their sales volume is very high. Various business models are used to distribute FMCG products, including wholesalers, retailers, and distributors. We will provide you with a brief explanation of the FMCG business plan in this articleand also discuss how it works.

Also Read: Implementing A Drug Store Business Plan In 2021


FMCG stands for “fast-moving consumer goods”; these are consumer goods with a high turnover and are shipped quickly. FMCG products include cooking oils, toothbrushes, beverages, milk, and almost any other product you can find in a typical Kirana Store or other dedicated stores.

FMCG products are categorized into three general categories. These categories are durables, non-durables, and services. Durable products can last for more than three years from the date of manufacture, meaning they can still be consumed afterward. Non-durable products have a shelf life of a maximum of three years, and they generally expire after that. In addition, services such as repair work also fall under the consumer goods section which is the third category of FMCG.

Also Read: Business Plan For Mobile Store


The market offers a wide range of fast-moving consumer goods. FMCG is a huge market that consists of different types of goods. FMCG products can be categorized into 9 different types, and we will describe each one in detail below.

  • Processed Foods – These are foods that are cooked or canned for sale in markets. These foods include pasta, cheese, ready-made sandwiches, etc.
  • Office Supplies – These items also fall under the FMCG category. This category of FMCG includes items like pens, pencils, and staplers.
  • Beverages – FMCG products of this type include regular drinks, juices, and energy drinks that are mainly consumed during the summer months.
  • Medicines – The pharma products fall into the category of FMCG products. Some examples of such are paracetamol, saridon, Aspirin, etc.
  • Cleaning Products – These products include all the regular items used for cleaning, such as floor cleaners, window cleaners, glass cleaners, etc.
  • Cosmetics & Toiletries – All cosmetic products are included in this section, including make-up kits, concealer, and foundation. Other products included in the toiletries section are soaps, shampoo, and shower gel.
  • Baked Goods – This category of FMCG includes all products baked by local businesses or manufactured by large corporations. Breads, cakes, croissants, cookies, etc. are among these products. Unlike most other FMCG products, these products have a shorter shelf life.
  • Fresh, Frozen, and Dry Foods- These types of products include frozen corn and peas, frozen fruits, frozen vegetables, and frozen meats.


A large supply chain is involved in the FMCG business model before the goods reach the consumer. FMCG business opportunities exist in every part of the supply chain. However, there are primarily 4 types of FMCG business plans, which we will discuss in detail below:

1- Manufacturers: This is the first part of the FMCG business model. Manufacturers are the ones who produce the products in bulk from raw materials, then send them from their side for consumption.

2- Distributors: A distributor is one who is partnered with a specific manufacturer such as Nestle, P&G, or ITC. Distributors buy huge quantities of products directly from manufacturers and then distribute them further to wholesalers.

3- Wholesalers: Wholesalers purchase various products from distributors and then sell them in small quantities to retailers. The profit margin between distributors and wholesalers is typically between pennies, but this part of the supply chain has the highest volume of sales.

4-Retailers: The retailers buy products directly from wholesalers according to demand and sell the products directly to the consumers. The retailers are part of this supply chain following a B2C (business to consumer) model. All the other parties involved in the supply chain follow the B2B model (business to business).

the observation that the FMCG business, along with urbanization and transportation development in India, is growing. Every part of India is covered by the FMCG network, even the remotest areas.

 In addition, the FMCG business sector is anticipated to reach a 7 trillion dollar market size by 2025, which is tremendous. The FMCG industry is relatively easy to break into and succeed in, as long as one prepares a good FMCG business plan.

The FMCG business sector, where margins range from 4% to 25%, is cited as having low margins by many. Nevertheless, we must acknowledge that this segment has the highest volume of sales which creates a great opportunity for doing business in this sector.



In terms of profit margins, the FMCG business has a very thin margin overall. Profit margins can range from 2% to 25%. Due to the numerous steps the products go through before reaching the store and the customer, the profit margin in this industry is very low.

Despite this, the volume of sales in the FMCG sector is large, which indirectly covers part of the less profit margin given. Additionally, we would like to point out that the competition for FMCG products is very high.


In the FMCG industry, all products have very slim profit margins. Nevertheless, baby care products, cosmetics, bakery, and frozen foods have the highest profit margins, ranging from 10% to 25% at most.


It completely depends on your capital. You can opt for distributorship of any FMCG company if you have huge investment plans. As an alternative, you can go into wholesaling with mediocre investment, or you can become a retailer if you do not wish to invest much and prefer to sell directly to consumers.


Quick take: Boosting your top line revenue is great, but you should never lose sight of your profits.

  • This post offers a deep dive on business profitability and how you can improve it. 
  • Learn expert-backed tips to maximize your profits for both the short and long-term. 
  • Discover how having the right retail data can lower your costs and improve your sales (both which can increase your profits).

Your profit margin is a metric that should always be on your radar, and for good reason: it answers critical questions about your business, like whether or not you’re making money or if you’re pricing your products correctly.

It’s important to note, though, that your profit margin isn’t just something you should measure; it’s a metric that you should continuously improve. As author Doug Hall said, “If your profit margins aren’t rising, chances are your company isn’t thriving.”

What is the average profit margin in retail?

In our study of 13,000+ retailers, we found that the average gross profit margin in retail is 53.33%. Comparing the data across regions, we didn’t find a lot of variances in profit margins, though New Zealand takes the lead with 52.92% margins.

That said, differences in margins were much more pronounced when we compared the data across multiple industries. Beverage manufacturers,  jewelry stores, and cosmetics had some of the highest profit margins, with 65.74%, 62.53%, and 58.14%, respectively. Meanwhile, alcoholic beverages, sporting goods stores, and electronics had some of the lowest margins at with 35.64%, 41.46%, and 43.29% respectively.

What is a good profit margin in retail?

Given the averages presented above, a “good” profit margin depends on your region and industry. Take a look at the above-mentioned benchmarks to gauge your performance against other retailers.

If you’re a sporting goods store whose gross profit margin is 50%, then you’d be above the industry average of 41.46%. However, that same profit margin of 50% is consider low for cosmetics stores whose margins are at 58%.

It’s also worth looking at net margins. Data from NYU Stern indicate that the pre-tax unadjusted operating margin in the retail sector ranges from 2.89% to 12.79% depending on the retailer.

Take a look at the following percentages and see how you compare:

  • Retail (Automotive) – 6.43%
  • Retail (Building Supply) – 12.79%
  • Retail (Distributors) – 7.70%
  • Retail (General) – 4.63%
  • Retail (Grocery and Food) – 3.48%
  • Retail (Online) – 5.74%
  • Retail (Special Lines) – 2.89%

How to Increase Your Profit Margins

Now that you have a better idea of the amount of profit that retailers are taking in, it’s time to look at the specific ways that you can increase your profit margins.

Here are 10 things you can try:

1. Avoid markdowns by improving inventory visibility

Markdowns are notorious profit-killers, so avoid them whenever possible. How do you do that? Start by improving how you manage your inventory. You should always have a handle on the 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.

“One way to maximize margins which also has other significant benefits is to have 100% visibility of inventory. By doing so, this minimizes markdowns and thus margin erosion. Zara are a particularly good example of this,” says Andrew Busby, Founder & CEO at Retail Reflections.

Vend Tip

If you’re a Vend user, you can gain immense inventory visibility by looking at your reports. Vend’s Reporting capabilities allow you to closely monitor stock levels and inventory movements, so you can keep products moving.


“Another way to maximize margins is to have an effective Product Information Management (PIM) system,” adds Busby.

With multiple channels and especially given the rapid rise of fast fashion — for example, ASOS adds around 5,000 new products each week to its website — giving the entire enterprise full, consistent visibility of product inventory means being agile and able to respond rapidly to shifting trends and constant changes in demand.”

Key takeaways:

  • Improve your inventory management practices. Get a handle on your data and always know what you have on hand, what’s selling, and what’s not moving.
  • Use those inventory insights to make decisions around purchasing, sales, and marketing.

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. According to experts, one reason behind this is the fact beauty and cosmetics brands excel at creating personal and emotional connections with customers.

Beauty is a category on fire…The price value equation is quite good, cosmetics make people feel better about themselves and foster strong customer loyalty, and the merchandising creates a sense of exploration…”

The cosmetic  product category creates a kind of personal connection with shoppers, unlike many other consumer goods. The price value equation is quite good, cosmetics make people feel better about themselves and foster strong customer loyalty, and the merchandising creates a sense of exploration — something the off-price retailers have also done quite well. Depending on the brand, packaging, and marketing attached, the profit on each small item can be really high.”

Chris Guillot, Instructional Designer of Merchant Math and Founder of Merchant Method, offers a similar view, saying that “cosmetics brands do a great job with brand management, playing to their customer base at an emotional level — status and lifestyle.”

According to Guillot, “Retailers of all sizes and stages of growth can focus on their unique brand positioning as a way to differentiate from their competitors and increase perceived value.”

Key takeaways:

  • Find ways to increase the perceived value of your brand. You can do this by focusing on the emotional and lifestyle values that your merchandise can offer.
  • For example, can your products make people feel better about themselves? Can they elevate the lifestyle of your customers? Brands that are able to these things can often charge a premium for their products. 

3. Streamline your operations and reduce operating expenses

“Retailers often focus on pricing strategies when searching for ways to increase profits, but most should try to start with streamlining operations,” says Krista Fabregas, a retail analyst at

“First, cut overtime and excess staffing as much as possible, then focus on areas of waste. Minimize supply: spend as little as possible, and ditch the fancy printed shopping bags, tissue fill, and excess packaging wherever possible. 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 system. This makes your entire store and staff run more efficiently.”

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.

Go through all the tasks that you and your employees complete day-to-day, and see if you can automate any of them. Are there cumbersome activities that are eating chunks of your time? Do you have to re-enter any data or perform certain steps more than once? Look for solutions that can take care of them for you.

Take, for instance, Crane Brothers, a contemporary menswear retailer. To save time and operating expenses, Murray Crane decided to automate the task of transferring sales data to his accounting software. Rather than manually plugging the numbers into the program, he integrated his point-of-sale system (Vend) with his accounting software (Xero). He got the two tools talking to each other so that information is automatically transferred from one program to the next.

The result? Murray was able to free up time so he and his staff could devote more energy to helping customers. He also estimates that the automated system in his store saves him forty to eighty hours a week — or one to two full-time employees.

Data entry isn’t the only thing you can automate. 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.

Key takeaways:

  • Lower your overhead by reducing wasteful spending and by using less expensive supplies (as long as you don’t compromise quality).
  • Automate repetitive tasks to save time and further reduce your expenses.
  • If you’re using Vend, visit our add-ons page and find tools that can help you automate tasks in your business.

4. Increase your average order value

Increasing the basket size or average order value (AOV) 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 maximize their spend.

Start with upselling and cross-selling. As Matthew de Noronha, Head of SEO at Eastside Co., puts it, “someone who makes a purchase from you has already been qualified. They have engaged with your brand and, while it may sound obvious, they are significantly more receptive to offers and product advertising. For that reason, it makes complete sense to encourage them to spend more.”

Matthew says that you can start by finding products likely to be purchased together. Then, after a user has committed to purchasing a product, encourage increased spending by recommending relevant items.

Check out what apparel retailer Francesca is doing. Most of the brand’s product pages have a “Complete Your Look” section containing products that complement the item being viewed. This encourages shoppers to add items to their cart, increasing their AOV.

Strategic product placement in-store can also increase AOV. Adam Watson, director of Decorelo, recommends putting “your most profitable products in the shop window and in the best area customers naturally go to in the store so as many eyeballs see them as possible.” Doing so will help you sell your most profitable items, contributing more to your bottom line.

Another tactic is to “put your best sellers and upsells near the counter for impulse buys to increase average order value,” says Adam.

Key takeaways:

  • Increase basket size through suggestive selling.
  • Find your most profitable products and position them high-traffic areas of your store.
  • Promote impulse buys at the checkout counter.

5. Implement savvier purchasing practices

Whether you’re at a trade show looking at new products or at the negotiating table with your suppliers, make sure you’re always finding ways to lower costs.

Think about the final cost

One of the best ways to do this, according to business coach Lindsay Anvik, is to “approach products by factoring in the final cost (i.e., wholesale cost, taxes, shipping, etc.). Once you have that final figure, ask yourself, ‘Would I pay X for this?’. If you wouldn’t, you need to find a way to lower the cost or move on from the product.”

Ask for vendor discounts or offers

Lindsay also recommends asking for discounts (e.g., free shipping) or other offers (e.g., throwing in a couple of extra products for free). This works particularly well when you’re buying in bulk.

Lindsay, for example, once helped her client “negotiate $2 off of every garment they ordered. The client was a top customer, paid on time and was easy to work with. The vendor was happy to give this discount because it didn’t hurt his bottom line too much. And because my client was a good customer, he was willing to negotiate to keep her happy.”

Increase order quantities

Let’s say you need to up your order quantities for a particular item to lower its price. In this case, you could look at your inventory data and determine if you can afford to order certain items in bulk. If not, would it be possible for you to consolidate orders for other items (or with other purchasers) to increase your buying power?

This is something that many large retailers have been doing for quite some time now. A few years ago, for example, Walmart sought out joint purchasers for raw materials, so they can consolidate purchases and get more buying clout.

Explore your options and run them by your suppliers to see if you can negotiate better deals. If they don’t budge, then check out other vendors to find out if they can offer you more favorable terms. (And make sure your existing suppliers are aware of this — they could end up giving you better rates.)

Key takeaways:

  • Before finalizing an order, always consider the final cost by factoring in taxes, shipping expenses, and more.
  • Don’t be afraid to ask your vendor to give you a discount or throw in a few extra units.
  • “Buy with other stores,” says Lindsay. “Get together with another store owner (or owners) and buy together. This way you can ask for a bigger discount from wholesalers.

6. Increase your prices

Raising your prices will enable you to make more money on each sale, thus widening your margins and improving your bottom line. Many retailers, however, balk at the prospect of increasing their prices out of fear that they’ll lose customers.

We wish we could give you hard and fast rules when it comes to pricing, but the fact is, this decision depends on each company’s products, margins, and customers. The best thing to do is to look into your own business, run the numbers, and figure out your pricing sweet spot.

On top of considering basic pricing components like your costs and margins, look at external factors such as competitor pricing, the state of the economy, and the price sensitivity of your customers.

And consider what types of customers you want to attract. Do you want to sell to shoppers would take their business elsewhere just because they could get an item for less, or would you rather attract customers who don’t base their purchase decisions solely on price?

You’d be surprised to find that majority of consumers (though this may vary from one industry to the next) may actually belong to the latter group. A study by Defaqto has found that “55% of consumers would pay more for a better customer experience.

Take all these things into consideration; do the math, and once you come up with a price increase, test it on a few select products then gauge customer reaction and sales from there. If the results are positive, roll out the increase across all your products.

Be creative with your price increases

You may also want to consider implementing creative or psychological tactics when coming up with your prices, to make them more appealing. You can, for instance, incorporate tiered pricing into your strategy.

Check out what shoe retailer Footzyfolds did. To combat cheaper knock-offs of its merchandise (they were selling them for $25, while Target had them for $10) the store decided to revamp its prices — but not in the way you might think.

Instead of lowering prices across the board, Footzyfolds introduced a high-end category for their products. With the new pricing format, they lowered the price of their everyday products to $20 a pair, but introduced a new “Lux” category for $30 a pair.

Owner Sarah Caplan told the New York Times that this move helped them increase profits. “We actually have had the most interest in our higher-priced shoes,” she said to the publication and reported that after launching the high-end line in the summer of 2010, they saw revenues increase by 100%.

Key takeaways:

  • If it makes sense for your business, go ahead and raise your prices. Krista recommends that you start with your top sellers. “Do you have a lot of competition, or do your products stand alone? If so, raise your prices on these products.”
  • Be creative with your prices. Factor in psychology or use methods like tiered pricing.
  • To learn more about tiered pricing and other strategies, check out our post on the secrets to irresistible pricing.

7. Optimize vendor relationships

Earlier in this post, we talked about negotiating better contracts with your suppliers to reduce the costs of goods and widen your margins. If you want to take things a step further, consider building stronger relationships by working more closely with them.

Engage in Joint Business Planning

Daniel Duty, co-founder and CEO of Conlego, says that retailers should engage in Joint Business Planning with vendors. “This is a collaborative tool whereby profit goals are agreed to, and initiatives are developed to help reach those goals. In other words, both sides help each other become more profitable,” he shares.

Reduce supply chain costs and inefficiencies

“The supply chain — or the process of getting a product from the factory to the store floor — is always full of inefficiencies and huge costs,” adds Daniel.

“Retailers should study their supply chain to figure out where there are unnecessary costs. For instance, shipping product in less than a full truckload is more costly than when it is full. Making many deliveries each week to a store is more expensive than just one. Retailers should ask their suppliers if they are doing anything that is adding to costs to the supply chain that could be stopped.”

It helps to have a discussion with your vendors to see if there’s anything you can do to make things easier or more cost-effective. 

That’s what photo digitization service did. President and CEO Mitch Goldstone says that collaborating closely with their vendors enabled them to enhance their business processes. “We invite our vendors to think of us as a partner. The better we do, the better they do. The process is simple, just ask vendors to help improve your workflow.”

Mitch shares that they even invited one of their vendors, the United States Postal Service, to visit their headquarters. “We asked them to study our entire shipping operation and the technology that drives our fulfillment services. Many, many elements we thought helped streamline the business, were all wrong and the USPS marketing team became our best partner to reinvent everything.”

See if you can do the same thing in your business. 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.

Key takeaways:

  • Have a collaborative relationship with your vendors. Engage in Joint Business Planning and figure out how you can both improve profitability.
  • Identify inefficiencies in your supply chain and find ways to reduce them.

8. If you *must* discount your products, be smart about it.

While discounting typically goes against traditional advice on profitability, it could work to your advantage if you do it right.

Consider personalized offers

For instance, you could try to provide tailored offers. Remember that not all customers are wired the same way. Some people may need a 20% off incentive to convert, while others don’t really require a lot of convincing.

Instead of killing your profits with large, one-size-fits-all offers, identify how big of a discount is necessary to convert each customer.

Case in point: Online bicycle retailer The e-tailer sought the help of big data company Retention Science to analyze customer behavior and gather intel on their customers’ past purchases, browsing history, and more. This allowed them to get to know their customers and figure out the most cost-effective way to convert each one.

They then created a series of email campaigns with five different discount offers tailored to each individual. Customers received one of the following offers in their inbox: Free Shipping (which is huge because shipping costs can run high for bikes and other accessories), 5% off, 10% off, 15% off, and $30 off new products.

The campaigns ran for two months and within that period, BikeBerry not only increased sales, but they were able to widen their profit margins by not offering discounts that are too big to customers who would convert at a lower threshold.

See if you can do something similar in your business. Instead of offering blanket discounts, go through the purchase histories of your customers, then personalize your offers based on their behavior and preferences. Doing so won’t just increase the chances of conversion (people are more likely to respond to an offer if it’s relevant to them), it’ll also help you maximize your margins.

Vend Tip

Are you a Vend user? This video shows you how you can track purchase histories and make tailored recommendations using our loyalty and customer management features. Check it out!

Time them right

Timing is also critical. As M. Pope Anthony, president and buyer at Anthony’s Ladies Apparel, notes, “there is a fine line between too soon and too late. If you hold on to items too long, you will eventually have to sell them at a much deeper discount. 

Good historical information and experience are crucial. Being overstocked on old, undesirable inventory will tie up your dollars and prevent you from buying new products. Eventually, your volume will decline, rendering you with fewer margin dollars.

Be sensible about your discounts

“Profit margins can be improved through sensible couponing,” says Matthew. “I’ve worked with many retailers who see the increased number of orders from promotions and sales.

But Matthew stresses the importance of analyzing your promotions to ensure that they’re not harming your margins.

According to him, you need to ask key questions such as, “How many more orders has a promotion brought in (compared to the average number of sales)? How much revenue did your promotion bring in, and how does this compare to average after your overheads and the discount has been taken into account?”

He adds, “One effective way to find this out is through A/B testing, offer your promotion to half your users (either through emails, targeted ads, onsite, etc.). This test may need to be run a few times to become significant. But very quickly you’ll be able to compare the profit made between the two groups — identifying whether your promotions are actually cannibalizing your returns.”

Key takeaways

  • Personalize offers so you’re not giving away too big of a discount to people who would convert at a lower threshold
  • Test different types of promotions to see which ones are really making you money

9. Inspire your staff to do more

One way to boost your profits is to increase the output of your existing staff. No matter what type of store you’re running, there’s a good chance that your employees aren’t being as productive as they could be — and that’s not necessarily their fault.

According to the Harvard Business Review, companies lose over 20% of their productive capacity to organizational drag —  “the structures and processes that consume valuable time and prevent people from getting things done.”

As such, it’s important that you evaluate your store processes to ensure that they’re not slowing people down. The key is to come up with procedures that can easily be replicated and implemented by your staff even when you’re not around. (Hint: if you have the right technology as mentioned above, you’re off to a great start!)

Once you’ve tightened up your processes, you can work on empowering and training your team to level up their game. There’s no one right way to do this, as each retailer is different. But here are a few ideas:

Key takeaways:

  • You could be losing staff productivity (and ultimately profits) to “organizational drag.”
  • Prevent that by streamlining your procedures, eliminating red tape, and empowering your team to do more. 

10. Identify and eliminate waste

Finding areas of waste in your business — and eliminating those wastes — can save money and add to your bottom line.

The world of lean manufacturing recognizes the 8 types of wastes that are costing businesses money. While the concept largely applies to manufacturers, retailers can also apply the concept to their operations.

Put it simply, the 8 types of wastes can be summarized using the acronym “D-O-W-N-T-I-M-E”:

– Defects (defective products due to issues like quality control, poor handling, etc.)

– Overproduction (ordering or making more merchandise than necessary)

– Waiting (unplanned downtime, absences, unbalanced workloads, etc.)

– Not utilizing talent (not fully leveraging the skills or potential of your team, having employees do the wrong tasks, etc.)

– Transportation (unnecessary movements of products — e.g., unnecessary shipping, inefficient movement from one store to the next)

– Inventory excess (surplus or dead stock sitting in your backroom)

– Motion waste (unnecessary movements of people — e.g., inefficient store layout)

– Excess processing (having to process, return, or repair products that don’t meet the customer’s needs)

Go through each of these components individually and see how they apply to your business. If these types of wastes are present, find ways to reduce or eliminate them.

11. Get more sales from your existing customers

Multiple studies have shown that selling to existing customers is more profitable than acquiring new ones. That’s why it’s incredibly important that you don’t neglect your current customers.

Nurture your relationships with them and continuously find ways to drive sales.

Our Bralette Club (OBC) does an excellent job here. OBC implements automated email campaigns to drive sales from customers who haven’t bought anything in a while.

OBC uses Marsello to automatically segment shoppers based on their behaviors. When a customer is considered “at risk” of not returning, OBC will automatically send a “We miss you” email containing a 15% discount.

Bottom line

You don’t always have to make drastic changes in your business to significantly improve your bottom line. As this post has shown, sometimes a simple tweak in your pricing or a phone call to your vendor can pave the way for wider margins.

Can you think of other tactics that can help retailers improve their profit margins? Let us know in the comments.

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:

  • “You should really offer social shopping.”
  • “Why don’t you ship and return for free?”
  • “Can’t you deliver to trunk like Amazon?”

This advice is well-intentioned but misinformed.

If you’ve got 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 percent 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 below. 

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

Here are more ways to increase profit margins for retailers

You’ve chatted with your accountant and understand your current retail profit margin. You’ve also looked at the average retail margin for your industry, and you’ve got a reasonable profit goal in mind. 

Now, let’s get you to where you want to be. Here’s how to increase profit margins today. 

1. Increase prices

You don’t have to increase prices across the board. Instead, selectively raise the cost of your most popular items. You’ll effectively add to your bottom line and improve profit margins, too. 

If you’re a small business owner, remember this: your customers don’t know your cost of goods. Plus, they’re purchasing from you for the shopping experience; the product is just a souvenir. 

Pro tip: Are you one of the lucky retailers slammed with revenge buying customers? Scarcity gives you cover to raise your prices (if you have the merchandise.) Don’t be afraid to do so.

2. Narrow your focus

You can’t be all things to all people — nor should you try. 

Have you ever dined at a restaurant with a menu like a novel? There might be 200 dishes to choose from, but they’re all mediocre at best. If you’re like me, you much prefer the restaurant with only 12 plates, each of which is outstanding. 

Last year, Wegmans cut 40% of their SKUs to avoid out-of-stocks on staples. 

Consider how much profit you’re earning on slower-moving items. Could you devote that shelf space to quicker-moving, more profitable items? Yes!

3. Limit the discounting

It’s tempting to turn to discounts when you need to make a sale. But without a plan, mark-downs rob you of earnings — and they certainly don’t increase retailers’ profit margins.

Let me tell you about a toy store owner I know. Every time she has bills to pay, she hops on Twitter to give her followers a same-day 30% discount. She thought it was brilliant. Only, it wasn’t. 

What this retailer didn’t realize is this:

This store owner was robbing herself of her own retail ROI. Sure, she paid her bills on time. But she also taught her customers not to purchase full-price — that it’s better to wait for the next Tweet announcing another discount. 

Discounts can work, but sparingly. A quarterly promotions schedule is a good idea. That said, customers in a post-Covid world seem less driven by price than by safety. So, limit the discounting. 

4. Cut waste

Are you hiring out for jobs your current staff could do? 

Take the window washer. Do you really need to pay an extra person to do this task?

Get more done with who you have, even if you’re not at full staffing yet. Your retail profit margins will thank you. 

5. Schedule retail employees to need

Do you have three employees opening when you really only need two? Are you understaffed every Saturday, when you know you’re always slammed? 

Ensure your employees’ schedules best fit your store’s needs. Save money where you can, but don’t risk losing customers to the competition due to poor service. 

Pro tip: With more people working from home, the conventional thinking that Saturday is the busiest shopping day isn’t always true. Use your numbers to inform your scheduling. 

6. No overtime — period

I’m not saying you should take advantage of your retail sales employees. 

However, don’t let high-cost hourly managers fill in for entry-level hourly employees. If something comes up, use salaried staff instead. 

7. Don’t schedule for the convenience of your employees

Want to know a managerial skill that will improve profit margins, too? If you only need your employee Vance for four hours, schedule him for four hours (even if he would prefer to work eight.)

Also, if your area is still heavily impacted by the pandemic, consider staggering shifts. You’ve got to keep your doors open to improve profit margins. 

8. Award extra hours based on merit

Grant employee requests for more hours based on their average sales (or the number of units per customer sold.) 

I know you want to be a nice boss, but it’s better to reward the retail associate helping you sell merchandise than to say yes to each and every staff request. 

9. Personally hand out all paychecks

When you see how much each staff member takes home, the cost becomes real to you. 

However, don’t just pass out checks. Say thank you and show gratitude where it’s due. 

10. Give bonuses when deserved

Pay bonuses proportionate to profit, not total sales numbers. Otherwise, you might reward an Expressive or Driver salesperson — two personality types that utilize discounts to make sales, effectively robbing you of profit. 

11. Look for theft by matching inventory to sales

A full-featured POS system makes it easy to track what came in the back and went out the front — and what went missing in between. 

If you don’t have the software, there are workarounds. For example, a restaurant franchise I know audits internal theft by matching the number of cups received to the number of drinks ordered. 

12. Cut vendors

When you buy more from fewer vendors, you’ll often get a better deal on pricing, shipping, and dating. 

Ordering only a few items from multiple vendors requires more bookkeeping and tracking, plus you’ll pay top-dollar trying to meet each minimum order. 

Even with the unknowns in merchandise forecasting, no one item is so special that it requires countless vendors. Simplifying your orders is an easy way to improve any retailer’s profit margins. 

13. Combine your orders

Are other dealers purchasing similar items from the same vendors? 

Combine orders to get freight and larger-order discounts. Clarify early on who is paying what, then pay before delivery to avoid complications. 

14. Sell added value by bundling products and services

Your customers value their time. So, they’ll pay for valuable services related to the products you carry. 

Take Best Buy’s Geek Squad. They promise to fix any computer problem — anytime, anywhere. Of course, they leave off “for a price.”

People don’t want the hassle of figuring things out themselves. And they really don’t want to screw things up. Selling added value is the way to a very profitable future. 

15. Fire unprofitable customers

Every retail business has that customer:

The one who needs all the hand-holding. Who beats you up on price and constantly calls you with time-consuming problems …

If your company is large enough, ask your order desk or sales rep to provide the top 10 complainers. Then, match them to the number of profitable orders they generate. 

Even if they deliver large volumes to your business, they must pass the profit test. If they don’t, tell them this:

“While I appreciate your business, the cost to manage your account outweighs the profitability. Therefore, we must implement an appropriate price increase.”

How to increase retailers’ profit margins: the bottom line

Most retailers evaluate operating profit margin a few times a year:

  • After a complete physical inventory to see how much money was on the sales floor
  • During the first quarter after the holiday dust has settled
  • Around tax time with a current profit and loss statement

But if you’re serious about increasing profit margins, any time is an excellent time to review your numbers. 

Improved retail profit margins don’t just come from discounts or cutting staff. Instead, limit unnecessary costs while increasing the number of items sold at the right price. That goes for expensive products, too. 

Start using these 15 tips today, but be sure to train your staff and improve your customer shopping experience, too. You’ll be in business for years to come. 

Most retailers know that the profitability of their business is crucial if they wish to survive in the market, but there are still plenty of brands out there who don’t know how to calculate the profit margin for their business.

Here, we’ll guide you through the process of determining your profit margins and share some tips on how to increase earnings at your brick and mortar store.

What does profit margin mean?

In the most basic sense, profit margin indicates the percentage of money derived from the sale of products or services that is left over to the business as income.

To better illustrate this point, it is useful to distinguish between two common terms: Gross profit margin and net profit margin.

Related: 15 Key Metrics (KPIs) to Measure Retail Store Performance

Gross profit margin is used to indicate the total amount of sales revenue you have left once you deduct production and acquisition costs, which are known as the Cost of Goods Sold (COGS). It’s important to note that the revenue used to calculate your gross profit margin is the amount of money your retailer earns before any operating costs and taxes are subtracted.

Gross Profit Margin = {(Revenue – COGS) / Revenue} x 100

By contrast, operating profit margin indicates the percentage of every dollar spent at your store that translates into operating profit (or profit before taxes) for your business.

To calculate the operating profit margin, you must know your operating income, which is the profit your business turns after deducing the COGS as well as other operating expenses – but still before paying taxes.

Operating Profit Margin = (Operating Income / Revenue) x 100

Let’s say your business brought in a revenue of $100,000 one weekend, but the cost of goods sold accounted for $20,000. That would bring your gross profit margin for that weekend to:

($100,000 – $20,000)/$100,000 x 100 = 80%, which is quite a high profit margin.

Now, let’s say your operating income for that same weekend was $40,000, once you factor in the $20,000 for the COGS and another $40,000 for other expenses like staffing and bills. That would mean your operating profit margin for that weekend is:

($40,000/$100,000) x 100 = 40%, which differs significantly from the gross profit margin but offers a more accurate representation of your business’s financial standing at that particular point in time.

What is the average profit margin for retailers?

There are a lot of factors that impact the profit margins of retailers, from product quality to supply chain operations, marketing costs and even customer service. Yet even with all these variables, there are certain industry averages every retailer should know.

According to Vend’s 2019 Benchmarks Report, wherein the brand studied more than 13,000 retailers, the average gross profit margin in retail is 53.33% worldwide.

Related: How to Calculate (and Increase) Retail Conversion Rate

According to the same study, the highest profit margins in retail came from beverage manufacturers (65.74%), jewelry stores (62.53%) and cosmetics brands (58.14%), while alcoholic beverage retailers (35.64%), sporting goods stores (41.46%) and electronics stores (43.29%) experienced some of the lowest profit margins.

Regardless of which category you fall under, we’ve got some actionable ideas to help you boost profit margins at your business.

1. Be smart about the discounts you offer

When aiming to increase your profit margins, your aim should be to avoid markdowns and discounts as much as possible.

Sure, a last-minute sales campaign with a hefty discount might land you enough money to pay your bills on time, but it won’t help – and could very likely hurt – your business in the long run.

One way to eliminate the need for discounts to move extra products from your store is to have your entire stock visible. If that is not an option for your retailer, you can also implement a Product Information Management (PIM) tool that provides standardized information about the products you have in stock, both online and in-store.

Using PIM software can help retailers track valuable information about each product they sell, which in turn enables them to make more guided decisions about pricing (more on this below).

Related: 15 In-Store Promotion Tactics to Increase Retail Sales

If markdowns are inevitable for your business – as may be the case for retailers that sell perishable items such as food – you can also take advantage of AI-powered dynamic pricing solutions to offer the right discount at the right time, thus helping you to maximize your profit margins.

Last but not least, you can look at past data to analyze your customers’ purchasing behavior and tailor your discounts accordingly.

For instance, if you find that your customers’ average transaction value didn’t change whether you offered them a 5% or 10% discount, you may choose to only offer 5% discounts from now on, or you may find that offering free shipping instead of discounts is a better solution for your business.

Dor Dashboard

Click here to discover how a people counting solution like Dor can help you understand your store’s ATV and other important metrics on a single screen.

Related: People Counters & People Counting: Everything You Need to Know

2. Increase the perceived value of your brand

One way to boost your profit margins without overhauling your product range is to elevate your brand perception in the eyes of consumers.

Lifestyle-oriented brands are particularly adept at curating a “persona” for their brand through smart messaging, captivating store signage and enticing packaging – just look at any high-end cosmetics company and you’ll begin to understand how important it is to distinguish yourself from other brands that offer similar products.

Even if you’re not a cosmetics giant, you can still get customers to view your brand differently by focusing on aspects of your business that aren’t directly related to sales.

The right solution will vary from one retailer to the next, but some ideas could be switching up the look of your store, investing in more alluring packaging or teaming up with influencers to promote your brand.

Another fail-safe way to improve brand perception in your customers’ eyes is to focus on offering exemplary customer service. By training your staff well, you can make them an asset for your business. If your customers know that they will be met with attentive, knowledgeable salespeople every time they walk into your store, not only will they become loyal customers, but chances are they also won’t mind spending a few extra bucks to receive the star treatment.

3. Boost your average transaction value

Speaking of well-trained salespeople, you may be glad to know that they are your best resource to boost profit margins. You want people who are well-informed about your product range assisting your customers, as they can take advantage of this opportunity to cross-sell or up-sell products.

For instance, if a customer is in your electronics store looking for a new smartphone, an experienced salesperson can convince that customer to spend more than they originally intended and buy a phone in a newer model (up-selling), or your salesperson can recommend accessories and related devices that would improve the customer’s experience using his or her new smartphone (cross-selling).

You could even turn this exercise into a game for your employees by setting sales targets and having them compete to beat them, perhaps with a small reward at the end. By motivating your salespeople to up-sell and cross-sell, you’ll get customers to spend more each time they visit your store, which would increase your average transaction value (ATV) – which, in turn, increases your profit margin.

Related: How to Calculate (and Increase) Average Transaction Value in Retail

Another way to boost ATV with the goal of increasing profit margins is to be thoughtful about your in-store product placement. By locating impulse purchases and smaller but intriguing items near the cash register, you give your customers one last chance to buy something before they proceed with payment for their items.

4. Reduce operating expenses

Routinely examining operating expenses to see where costs can be minimized or eliminated is something that all retailers should do, but for those looking to increase profit margins, it is a must.

One of the first changes you can make is to cut excess staffing at your retailer. An easy way to do this is to install a foot traffic counter, which will provide you with data on what times and days are busiest at your store so you can make sure to have enough staff on hand for those times.

Dor Dashboard

Click here to discover how a people counting solution like Dor can help you understand your store’s busiest hours and other important metrics on a single screen.

You can also review the tasks assigned to your existing staff and see if you can switch around their roles to highlight their talents – if an employee is really good with people, you would rather have him or her chatting up customers, not stuck in the back doing inventory.

Another way to reduce operating expenses is to see which parts of your business can be automated to save you time and labor costs. By investing in POS software that readily displays retail analytics such as inventory management data and sales metrics, you can eliminate the need for specialized personnel to do things like data entry and analysis.

Using data in this way will also help you see where losses occur in your business, whether it’s due to an inefficient supply chain, too much stock kept in-store or another factor. Correctly assessing this information will enable you to reduce wastage at one or multiple points throughout your business, thus increasing your profit margins.

5. Build rapport with your vendors and suppliers

Take another look at your supply chain. Are you spending too much money on transporting products or supplies to your store? If so, it’s time to get in touch with your suppliers to see if you can work out another solution.

If at all possible, you should try to consolidate your vendors into one or a few. If that’s not an option, you can also try to combine orders with other retailers in your region to lower transportation costs. Yet another option is to buy products in bulk if you have the space to store them.

For most brick-and-mortar retailers, building rapport with vendors and suppliers is key. Not only will it give you a chance to ask for vendor discounts or flexible payment options, but a close relationship with your supplier will also enable you to set and work towards some common goals to improve profit margins at both businesses.

6. Eliminate products with low profit margins from your stock

As we mentioned earlier, incorporating retail analytics into your business can help you easily see the gross profit margin on individual products throughout your store.

By minimizing or altogether eliminating products with the lowest profit margins from your stock, you can focus your time, energy and money on products that yield higher returns for your business.

As a general rule of thumb, products with a markup of less than 20% can be considered to have a low profit margin. These products are often inexpensive and easily replaceable, and sometimes they can be generic alternatives to name-brand goods.

The most common examples of products with low profit margins are personal hygiene products, household chemicals, baby food and accessories. If selling these products is not essential to your business, try eliminating them from your next order and see how your customers respond to the change.

7. Increase prices

Most retailers are reticent to raise prices for fear of losing the customers they already have, but sometimes it’s the only way to increase your profit margins.

If you haven’t altered your prices in a while, it’s a good idea to check out what the competition is doing so you aren’t underselling your products. You must also consider economic factors at large, such as inflation.

Related: 5 Time-tested Techniques to Improve Your Stores’ Sales

One of the most important factors affecting your pricing will be how your customer base approaches money. Take a close look at their spending habits. If you find that your customers are choosing your store more for the experience than the discounts, they’ll likely stay as long as you continue to offer them the same top-notch service they won’t find elsewhere.

Another thing to consider is that you don’t have to raise prices across the board. You could try raising the profit margin on a group of products to see how your customers will react. A smart way to do this would be to mark up select items and market them as a more high-end alternative to your usual product range. You may even find that customers prefer this segment due to their perceived value of the products in it.

In other words, it just might be a big hit!

The relationship between your costs and sales is key to running a profitable business. One of the key metrics you should monitor is your profit margin. But how can you increase your profit margins? 

It starts with understanding the difference between gross profit and net profit and how your operational costs, cost of goods sold (COGS), pricing, markdowns and sales volume all contribute to whether or not your store turns a profit.

And getting each down to a science is the key to profitability. 

In this post, you’ll learn the following: 

Let’s dive in! 

Put your store growth on autopilot

Did you know that merchants who use Lightspeed POS grow their business four times faster* than their competitors? Our system helps you automate tedious tasks, order, manage and sell inventory smarter, accept payments and scale your profits.

* Source: Lightspeed’s Year in Review

What is gross profit?

Gross profit is your total revenue minus the cost of generating that revenue. Simply put, gross profit is your sales minus the cost of goods sold (COGS). Your gross profit tells you how much money your business has before paying for other expenses like payroll, marketing, utilities, etc. 

Gross profit formula

Your gross profit is calculated by subtracting the cost of goods sold from your sales. Expressed as a formula, it looks like this: 

Understanding gross profit

Let’s say that Johnny’s Bikes sold $20,000 worth of a Bike #1 in one month. Their inventory cost them $10,000. Bike #1’s gross profit is $10,000. 

In that same month, Johnny’s Bikes sold $15,000 worth of Bike #2 and its COGS was only $2,000. Bike #2’s gross profit is $13,000.

Although Bike #2 sold for less than Bike #1, its gross profit is higher, therefore the bike is more profitable to sell. 

What is gross profit margin?

Gross profit margin is when you express gross profit as a percentage. The higher the percentage, the more profitable an item is for a business to sell. 

Gross profit margin applies to a specific product a business sells. Calculating gross profit margin enables businesses to set prices that make selling the product worthwhile. 

Gross profit margin formula

Your gross profit margin is calculated by first subtracting the cost of goods sold from your sales, then dividing that amount by sales. Expressed as a formula, it looks like this: 

Understanding gross profit margin

Taking the same example as we did for gross profit, let’s explore the gross profit margin of Bike #1 and Bike #2 at Johnny’s Bikes. 

Bike #1 sold for $20,000 and its gross profit was $10,000. 

Gross profit margin = 10,000 / $20,000

Gross profit margin = 0.5

Gross profit margin = 50%

Bike #1’s gross profit margin is 50%.

Bike #2 sold for $15,000 and its gross profit was $13,000. 

Gross profit margin = 15,000 / 13,000

Gross profit margin = 1.15

Gross profit margin = 115%

Bike 2’s gross profit margin is 115%. Since its cost of goods sold is less than Bike #1, it’s more worthwhile for Johnny’s Bikes to sell Bike #2 than it is Bike #1 because they’re making more profit on each sale. 

What is net profit margin?

Let’s say you wanted to express your entire business’s profitability rather than just one product; that’s your net profit margin. A business’s net profit margin is expressed as a percentage. 

The higher the percentage, the more profitable the business is. A low net profit margin is a signal that there are issues impacting your business’s profitability potential, from high expenses (rent, utilities, labor, etc), issues with productivity or even management issues. 

Net profit formula

To calculate net profit margin, you first need to find your net profit by subtracting your total expenses from your total revenues.

Net profit margin formula

Next, divide your net profit into your total revenue and multiply the result by 100 to express the value as a percentage. 

Understanding net profit margin 

Let’s say Johnny’s Bikes’ gross sales are $500,000 and their total expenses are $250,000. Their Net profit would be $250,000. 

Net profit = $500,000 – $250,000 

Net profit = $250,000

To express your business’s net profit as a percentage, do the following: 

Net profit margin = ($250,000 / $500,000) x 100

Net profit margin = 0.5 x 100

Net profit margin = 50%

What contributes to profit margins?

There are many things that factor into a retailer’s profit margins, including markdowns and promotions. 

When you sell an item for less than your initial markup (IMU), you’re effectively lowering your profit margin on that item. That’s why having the right markdown strategy is so important. You never want to arbitrarily attribute a discount to a product; always pinpoint a retail price that will be both interesting for deal-hunters and profitable for your business. 

Your point of sale system can also help. One of the main reasons retailers discount products is to liquidate old inventory that wasn’t selling at full price. A retail POS system with inventory management capabilities will keep you from ordering too many units of a product, preventing you from having to discount its price to get rid of excess inventory in the first place. 

What is the ideal profit margin?

Profit margins vary greatly depending on a retailer’s sub-sector and what products or services they sell. 

For instance, a fashion and apparel store’s profit margins will vary greatly based on what type of clothing it sells (is it fast fashion, mid-level or luxury goods?). If we were to compare the profit margins of a clothing store to that of a hand-made furniture store, they would vary greatly even if their respective profit margins are healthy for their respective sub-sector or niche.  

5 ways to increase your profit margins

Now that you know what gross profit is and how to use it to attribute a product’s monetary value for your business, let’s look at eight tried-and-true ways to increase your profit margins and give a boost to your sales: 

  1. Bring your brick-and-mortar store online
  2. Avoid markdowns by improving your inventory purchasing
  3. Plan ahead for each season
  4. Find ways to reduce operating expenses
  5. Increase your average transaction value (ATV) 

1. Bring your brick and mortar store online

It’s imperative that your customers are able to find your retail business online

This can be as simple as creating a Google My Business profile to help more local customers find your store either through Google Search or Google Maps. According to Google, 88% of people that search for a local business online either call or visit that business within 24 hours. Setting up a GMB profile helps businesses convert online visibility into in-store transactions. 

If you want to take it a step further, consider launching an online store. While getting started may seem like a daunting task, you can always start small and work your way up as you have time and resources. 

Even a basic (but well-designed) website that features your business name, location and contact information is beneficial for helping customers find your store. But the real benefit of setting up an online store is creating a secondary sales channel to complement brick-and-mortar sales. 

With Lightspeed eCom, you can build a transactional website using handy templates, sync your physical store’s inventory with your online store and manage both from the same backend. 

An online store can increase your exposure and sales while costing far less than opening a second physical location. 

Key takeaways:

  • Set up a GMB profile to increase your retail store’s visibility and convert that into in-store sales. 
  • Create a transactional online store to increase sales at a lower cost than if you were to open a second brick-and-mortar location.

2. Avoid markdowns by improving your inventory purchasing

Whenever you lower the price of an item, you’re also lowering that item’s profit margins. That’s why it’s best to avoid markdowns whenever possible. 

The most effective way to avoid markdowns is to improve your inventory management, the merchandise you have on hand, the products sell quickly at full price and the ones that don’t. That information (which you can typically find in your POS system’s sales reports) will help you decide which products to stock up on and how much to buy to fulfill customer demand, prevent overstocking and avoid the need for markdowns and promotions altogether. 

Key takeaways:

  • Use your sales and inventory data to get a clear understanding of how much inventory you have, which products sell at full price and what doesn’t sell unless marked-down (or doesn’t sell at all). 
  • Leverage those insights when purchasing inventory to assure that buying products that sell at full price and not over-stocking either. 

3. Plan ahead for each season

Most retail businesses have a season where their sales peak. A retailer’s peak season will vary based on their sector, product-type and their location. Even then, most retailers in the US will experience a fluctuation in sales from one month to another. 

Retailers should get into the habit of looking at their annual sales reports, broken down month-by-month. Which months do they make the most sales in? Does that pattern persist year after year? 

Use those patterns when planning your seasonal inventory purchasing. If you notice that you sell a higher volume of certain product types in a given season, consider purchasing more units of that item to capitalize on its seasonality and maximize sales. 

A secondary benefit to planning your seasonal inventory ahead is that suppliers may offer discounts for advanced or bulk orders. You may be able to lower that item’s COGS, maintain it’s retail price and maximize that item’s gross profit. 

Key takeaways: 

  • Look at your annual sales reports broken down month-by-month and take note of any patterns. 
  • Use that data to plan what seasonal inventory you will carry in advance. Suppliers may offer discounts on purchase orders submitted in advance. 

4. Find ways to reduce operational expenses 

Krista Fabregas, a retail analyst at, suggests that retailers find ways to streamline their operations as a way to increase profit margins. 

There are several key areas where a retailer can reduce operational costs. For starters, look at labor costs and avoid overstaffing. Next, look at other costs like your product packaging, shopping bags and even your store lighting. Are there any costs that can be reduced? In the case of lighting, it may be worthwhile to invest in energy-efficient commercial lighting. 

Another way to reduce operational costs is by streamlining productivity. Are there certain repetitive tasks that are taking up chunks of you and your staff’s time? A usual culprit is anything to do with data entry. 

The good news? Most time-consuming data entry tasks can be automated. For example, rather than manually transferring sales data from your point of sale system to your accounting software, consider using a two-way integration like Lightspeed Accounting, which automatically pushes information from one system to the other. Spend less time punching in numbers (or avoid paying someone to do that task for you) and benefit from accurate bookkeeping. 

Key takeaways: 

  • Find places where you can lower your overhead spending without sacrificing the quality of your customer experience. 
  • Automate time-consuming, repetitive tasks to save time and lower your expenses. 
  • If you use Lightspeed, visit our integrations page to find tools that help you automate tasks. 

5. Increase your average transaction value (ATV)

Increasing your store’s average transaction value (ATV) is both an excellent and achievable way to increase profits. Retail is an inherently social activity and, although technology helps merchants serve customers, nothing can replace the connection between an empathic and informative (but not pushy) sales associate and their customer. 

But how can you use social interactions to boost ATV?

Teach your sales associates the art of suggestive selling. Once a customer is in your store, it’s on your sales associates to build a rapport, listen intently to their needs and find products that fulfill those needs. In our 2020 Retail Trends Report, we found that 82% of consumers want more human interaction when they shop and those interactions between sales associates result in higher in-store sales. At the NBA Store in New York, for instance, conversions increased by 182% when customers engaged with a sales associate. 

Your store layout has an impact on in-store sales, too.

How you promote and display your products in-store, known as visual merchandising, can help customers find what they’re looking for, discover related products and make a purchase. Point of sale marketing (placing low-investment products near the checkout) is another tactic retailers use to increase impulse purchases and a customer’s transaction value. 

Key takeaways: 

  • Teach your sales associated the art of suggestive selling to help them close more sales without coming off as pushy. 
  • Assure that your visual merchandising helps customers find what they’re looking for, discover related products and add more items to their transaction without the help of a sales associate. 

Take action to increase your profit margins 

Although the tactics you use to increase your store’s net profit margin will vary depending on your sector and what type of product or service you sell, several things are constant across all types of retail businesses: 

  • Selling online is an excellent way to generate more sales and costs less than opening a second retail location.
  • Avoiding markdowns and discounts by improving your inventory purchasing will help maximize each item’s gross profit. 
  • Purchasing seasonal inventory in advance may reduce its COGS and increase your gross profit. 
  • Reducing operational expenses will result in you having more liquid capital to invest elsewhere. Just make sure you aren’t sacrificing the customer experience as a result.
  • Look for ways to increase in-store sales and your customers’ ATV.  

Ultimately, each of these tactics has a similar objective: spending less and selling more. As you prep your retail store for long-term growth, consider applying them in your day-to-day operations and monitor their impact on your bottom line. 


Running a successful business is a balancing act that can grind to a halt if your spending exceeds your income. To stay afloat and remain attractive to your market (and investors), you must stay in the black. More sales and customers are always good things for a business. In addition to boosting profits, you must understand the profit margin formula – the difference between your revenue (the amount of money your company brings in) and your costs – and take control of it to succeed. Since your profit margin is how much money you actually get to walk away with after a transaction is complete, understanding how to increase profit margins in business is fundamental to growth. By learning to increase profit and master your margins, you will empower yourself to face challenges with confidence.

profit margin


Understanding how to increase profit and elevate the profit margin of your business is vital to your bottom line and ability to attract investment. Since a company’s profit margin indicates its ability to manage its expenses, investors use them as a basis of comparison when sizing up a potential investment. To get a sense of a firm’s overall performance in the market, investors compare its operating profit margin (its dollar-to-dollar conversion of revenue into profit) to that of the entire industry or to a benchmark index like the S&P 500. While profit margins vary industry to industry, the average profit margin is around 10%. A business whose margin exceeds the average is outperforming the overall market, while a margin that’s consistently subpar may signal a failing business.

The profit margin formula for operation is based on dividing your net income (i.e. total revenue minus expenses) by your net sales (i.e. gross sales minus returns, discounts and allowances) and multiplying the result by 100. Whether or not you’re over 10%, there is always room for improvement to increase profit margins and your business’s overall resiliency.


Profit margins are based on expenses vs. revenue. When profits decline or expenses increase, the margin will go down. A decline in profits can be a product of the economy, a sign that there has been a social shift in your customer base or a red flag that your business model is no longer relevant.

Profit margins are also subject to a variety of influences that can cause them to decline. All industries are at the mercy of overall economic conditions, which impact everything from consumer behavior to interest rates to the cost of raw materials, labor and production. Your industry may find itself upended by a disruptive new technology that changes the market overnight. Something as straightforward (and fixable) as careless accounting procedures can also throw off your revenue vs. profit ratio, causing your profit margins to dip.



It’s easy to get ahead of yourself, especially when you’re working to increase profit margin and profits as a whole. You start thinking about your ultimate goal, and forget about all the little steps it takes along the way to get there. Instead of falling into that trap, learn to strive for incremental growth. It’s important to have an end goal, but it’s even more crucial to set small goals that you and your business can manage and track over time. This allows you to make consistent progress and monitor how your business is performing. Check in with yourself – do you have the time frame and resources needed to consistently achieve your goals? It’s great if you want to make $50 million, but that doesn’t happen overnight. Set goals along the way to increase your profit from $5,000 to $10,000 and so on until you’re in a position to set your sights on your ultimate objective.

woman calculating profit margins


calculating profit margins

There aren’t many companies that can say they honestly offer their customers something brand new. At this point, successful businesses expand on existing ideas, but they do it in a way that’s useful and appealing to their customers – they strategically innovate. To truly understand how to increase profit margin numbers for your business, identify who your customer really is. Who is this person and what need do they have for your product?

An example of a strategic innovator is Netflix. Before the streaming service came along, people were happy to rent tapes at Blockbuster. Netflix saw how they could capitalize on this need for home entertainment, and found a way to make movies even more accessible for their target audience. They strategically innovated. If you’re able to create an innovation culture, you’ll be leagues ahead of your competitors and can expect your profit margins to rise accordingly.


Increasing your profits is partly about the service or product you’re offering, but it’s also about your success in building a team that works. Who do you have on your side that supports you 100%? Who works for your business that not only knows the company inside and out, but is willing to rave about your business and bring in new customers? To increase profit margins for your business, creating an internal culture of raving fans is just as critical as locating your target audience. When you assemble a team of people who are excited to work for your brand and spread your message, it becomes a hundred times easier to be successful.

company increasing profit margins


how to increase profit margins

If you are not happy with your profit growth or margin, you need to take an objective look at your business and identify the gaps. Even if your company is successful, there’s something you can do to make it more profitable. Look at your expense reports, personnel reviews and current sales. What area is lacking? If there’s a noticeable gap, address it. Why did your business spend $10,000 on office supplies last year when nothing major, like your copy machines or computer chairs, has been updated? Have you stopped identifying ways to get new customers? Assessing the current state, and possible shortcomings, of your business will help you create a better plan to move forward and increase profit.


The laws of physics apply in business, and velocity matters. The faster you can turn a product around from order to delivery, the faster you’re able to generate revenue and increase your profit margins. Take a close look at your production processes, from your first contact with a customer to the moment your product is delivered safely into their hands. How can you speed up each step of the process? By streamlining, you’re able to trim costs and increase profit margins for your company.

fine tune



The beauty of studying how to increase profit margin numbers for a business is that profit margins are by definition ratios. You don’t necessarily need to increase your profits to improve your margins – you’ll likely find success in reducing your expenses as well. Examine all the ways your business spends money. Where are you losing money through spoilage, scrap or waste? Is your forecasting off, causing you to purchase too much raw material? Are there quality control issues with your product? Is your product selling so slowly that it becomes obsolete? Are your distribution channels efficient? By carefully considering all your options for trimming loss, you can cut your costs and increase your profit margins.


When your profit margins dip, it’s easy to take an “anything goes” approach to marketing and production. This approach may backfire in the long run, since a low-margin product produces less bang for your buck. To increase your profit and overall margin numbers, focus on products that sell best and deliver the highest profit. Quality products inspire loyalty as well as boost revenues.

high end



Marketing guru Jay Abraham believes that most business owners think too small when it comes to increasing profit margin. While most companies believe a 10x growth strategy equals success, Jay thinks that they are capable of much more – up to a 100x internal growth model. How do you accomplish that? Here are some of his strategies.

One of the ways to increase profit by that much is to capitalize on other people’s resources. By capitalizing on other company’s tangible and intangible resources, you can achieve explosive yet sustainable growth. Jay suggests finding ways to utilize other people’s money, time, experiences, ideas and current customers to fuel your profits. Capitalize on this formula by acquiring smaller companies, working with influencers and creating cross-promotional campaigns with those you can share resources with.


Are you stuck in your business and feel you can’t increase your profit margin no matter what you do? Or, as Jay suggests, are you stuck thinking a 10x growth strategy is all you can achieve? Jay has a nine-step plan for getting unstuck that includes gaining your market’s trust, developing a maven persona, developing a vision for your marketplace, telling your creation myth and creating a velvet rope community. Not only will this plan get you unstuck, it will also fuel a profit margin you never dreamed possible.

get unstuck


Most businesses have one primary method that is generating 90 to 100% of their revenue. Jay refers to this as the “diving board method.” He suggests using a Power Parthenon method with different pillars instead, each of which is a revenue-generating activity. This strategy means you won’t be dependent on a single activity for your profits and that all activities will work together to improve each other and create a much larger profit margin.



Create a loyalty program to increase profit margins

Return customers add to your profit margins at a much higher rate than new customers. Why? Because they tend to spend more and tell others about your products or services. Return customers also cost less as you don’t have to spend marketing money to convert them from prospects into customers. Increase profit margins by creating a loyalty program for those who already do business with you to take them from regular customers to raving fans of your company. You can entice them with exclusive sales, cash back, rewards or perks such as free products or extra discounts.


If you consistently make high-quality products or perform professional services and have not had a rate increase recently, you have an easy way to increase profit. Pricing must increase with inflation and with the growth and experience of your company. If you have a strong core customer base that you’ve served well and kept happy, a modest increase in price will not cause you to lose business. Along with the increase in profit margins, a price increase can make you appear more valuable in the eyes of your customers.

Increase pricing for better profit margins and revenue


Outsource when possible for profit margins

Is payroll eating up your resources and decreasing profit margins? Many small businesses struggle with keeping the right number of people on staff. Too few and you cannot properly take care of your customers. Too many and you have a high payroll with idle employees. One way around this is to outsource some parts of your business to freelancers or contracted workers. You can use them only when demand is high and won’t have to pay them when they are not needed.

There’s an art to increase profit and it’s one that not everyone can master. Many businesses fail, but yours doesn’t have to. The key to professional success is in realizing how and when your company needs to adapt. Are there ways you can move forward that you haven’t considered? Is there a key leadership position you need to fill? By knowing what your business truly needs, you’ll create a sustainable, profitable company that you can reap the benefits of for years to come.


Team DigitalGumma

A Professional Team Of Over 25 years of experience in Sales & Marketing operations, Channel (Direct & Indirect) Development and Distribution, and Key Account Management in the FMCG Sector. AREAS OF EXPERTISE Sales & Marketing: Conceptualizing and implementing sales promotional strategies as a part of brand building and market development effort. Business Development: Handling infrastructure development of sales & distribution systems and increasing coverage & penetration to have maximum market share. Channel Management: Identifying and networking with financially strong and reliable dealers/channel partners, Super Stockist, C&F resulting in deeper market penetration and reach. Ensuring cost-effective logistic operations & seamless materials movement to ascertain sufficient inventory levels at each sales outlet/ distribution channel. Evaluating performance & monitoring distributor sales and marketing activities. website has everything you need to create a fully personalized, high-quality free showcase website. Get the word out about all the amazing things you’re doing. Easily email your contacts or share on social media to tell everyone you know. Sell Anything Anywhere To Anyone. is a business development platform motivated to ideate connect propagate to millions of users worldwide. Create a beautiful, professional web presence. Our expert team members collaborate across digital marketing specialties to produce powerful results. Build your next digital marketing plan utilizing the latest internet technology, explode your online presence with a Fully Managed SEO program, and maximize your profits.

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