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15 Common Strategies to Increase Your Profit Margins

Retailers are more focused on profit margins than ever before.

The Covid-19 pandemic at this time was so devastating that stores were unable to open their doors for business. The only way they could sell any products at all, even with the limited demand of people who still had jobs and money, was by offering curbside pickup.

There are some new theories on how to motivate salespeople. Retailers should consider the possibility of incentivizing their employees with similar programs.

This advice is not bad, but it might be incorrect.

If you’re just as big and powerful as Amazon, Walmart or Target then there’s no need to worry.

But if you’re anything like the retailers I know, then your company is running on a tight budget and can’t afford to pay employees what they want. So in order to set up these programs, it’s not just about providing additional benefits; there are also other costs that need to be accounted for.

In order to increase your retailer’s profit margin, you have to do two things:

Establish your average profit margin. This may take some time, but you can start by checking out the margins of other successful companies in your industry.

The second step is to use proven methods for maximizing your retail profit margin. There are no complicated programs or gimmicks required.

Retail Margin

When calculating the gross retail profit margin, subtracting the cost of goods sold from revenue is key. This number does not account for additional operating expenses, which makes it net profit.

A retail margin is a representation of how healthy your business currently is. Click To Tweet

It also shows the amount of revenue that’s being diverted to the bottom line.

If you don’t know your average retail profit margin, ask an accountant or bookkeeper. They can help break down costs and expenses.

To find out how much money you make off of every dollar, here’s the formula:

A gross profit margin is total revenue minus the cost of goods sold, divided by total revenue and multiplied by 100.

Here’s an example you can understand how to calculate:

If you buy something for $1 and sell it for $2, what’s your profit?

You must be doing really well if you got 50% of the retail price.

The retail industry is constantly evolving, and retailers are going to have a difficult time sustaining the 50% gross profit margin that we see in other industries. However, this doesn’t mean they’re doomed.

The Good Profit Margin For Retail

The world average gross retail profit margin is 53% according to Vend’s 2019 Benchmarks Report.

The average retail profit margin varies by industry. The typical margins for a high-end jewelry store and the grocery in your neighborhood are going to be very different.

In order to have a more successful business, you need to keep tabs on your numbers. Otherwise, it’s going to be really hard for you.

Increase Profit Margins

You’ve been talking to your accountant and have a general idea of what kind of profit margin you need. You know the average retail margins for this industry, too, so it shouldn’t be hard to figure out where you want that number to end up.

I know that you want to be successful, so I’m going to show you how. You just need a few tweaks in your strategy and increase profit margins will follow.

profit margin

1. Check Prices

If you want to increase prices, don’t just raise them across the board. Instead of raising your least popular items’ price a little bit, try increasing your most popular item’s price by more.

You’ll make your company more profitable by giving employees a voice in how they are compensated.

One thing I learned from running my own business is that your customers don’t know how much you paid for a product. Plus, they’re buying the shopping experience and not just what’s in the bag.

You are one of the lucky retailers that are experiencing a customer buying frenzy. As long as you have inventory, then feel free to raise your prices because scarcity will be an excellent cover for any increased costs.

2. Focus on One Thing

If you’re trying to be everything for everyone, then I’m sorry but it’s just not going to work.

I find that I often prefer restaurants with a more limited menu. If there are 200 dishes, it’s hard to tell which ones are any good. And if you’re like me, then your tastes will be satisfied by the 12 great options on offer.

Last year, Wegmans cut 40% of their products to avoid running out on basic items.

3. Discounts

When you’re struggling to make a sale, it’s tempting to turn down the price. But if you don’t have an overall plan for discounts and markdowns, then these will just lead your profits straight downhill they won’t help retailers either.

One toy store owner I know always posts a same-day 30% discount on Twitter when she has bills to pay.

She thought she had come up with a genius idea. But it turns out, the brilliance was not in her plan.

We didn’t realize that a few simple changes to our business model would have such an impact on customer satisfaction.

This store owner was wasting her own money. Sure, she paid the bills on time, but that’s just because she didn’t want to get in trouble with management.

But her customers also learned to never pay full price and instead wait for the next Tweet announcing a sale.

I’ve found that it’s not the discounts themselves, but how often they’re offered. I’d recommend a quarterly promotions schedule.

It seems that customers are more interested in safety than they are in price. So, I’ve been limiting the number of discounts.

4. Wasting

Your current staff could be doing these jobs, why are you hiring out?

Even if you’re not at full staffing yet, don’t be afraid to ask your current employees for help. You’ll see a boost in retail profit margins and that’s always worth it.

5. Learn About Employees’ Interests

Are you always short-staffed, even when your workload is at its peak? Do you have more people than needed on the payroll and spend hours trying to figure out how best to allocate labor with each person?

Make sure that your employees are the right fit for the store. Click To Tweet

They may not be paid enough, but you can’t afford to let them get away with bad service or lose customers because of it.

If you’re looking to find out what days are the busiest for your business, don’t just go by conventional wisdom. Look at numbers and see which day is most popular with your customers.

6. Periods

I’m not saying you should exploit your retail employees.

One way to solve this is by hiring managers with hourly rates that are more expensive than the workers. This can be very problematic, so instead, you should use salaried staff if something comes up.

7. Staggering Shifts

If you want to know a really effective managerial skill, I’ve got one for you. If your employee Vance is only going to be working four hours per day but prefers eight, schedule him in for the full-time shift anyway.

There are other things you can do to improve profit margins, like staggering shifts if your area is still heavily impacted by the pandemic.

8. Award For Extra Hours

Take care of your employees by giving them more hours when they are selling at a higher rate.

If you want to be a good boss, don’t give in to every request from your staff. The best way is by rewarding the retail associate who helps sell merchandise.

9. Paychecks

When you actually see how much the staff earns, it becomes more real to you.

It’s not enough to just hand out checks, you have to say thank you and show your gratitude for their work.

10. Bonuses

When it comes to your sales team, don’t just reward them with pay bonuses. Base the amount of commission they receive on their contribution in terms of profit, not total numbers sold. Otherwise, you might be rewarding someone who uses discounts or other marketing strategies which would ultimately hurt your bottom line.

11. Full-featured System

With a full-featured POS system, you can easily track what comes in and goes out of the store. You’ll also be able to tell if any products go missing during this process.

There are some things you can do if your software is not installed. For example, a restaurant franchise I know audits internal theft by matching cups received to drinks ordered.

12. Vendors

When you buy from fewer vendors, they can provide better pricing and service.

Ordering a small number of items from multiple vendors means more bookkeeping and tracking, which will lead to higher prices.

It’s hard to predict what will sell in the future, but don’t get so carried away with over-buying that you lose out on your margins. Simplifying orders is a great way to improve any retailer’s profit margin.

13. Be Different

I’m wondering if any other dealers are getting their inventory from the same vendors like me.

You can save a lot of money on freight by combining orders and working with the customer to identify their share in advance. Just be sure that you have a clear understanding before delivery so there are no surprises later.

14. Products and Services

Customers are willing to pay for services that they find valuable. This is because, in the end, customers want time-saving solutions.

Best Buy’s Geek Squad is great because it will fix any computer problem, anytime and anywhere.

Most of the time, people are leaving off this key detail.

We all want to be able to focus on our work and not worry about trying to figure out how things should be done. And it’s always good when we don’t make mistakes.

Selling more than just a product or service is the way to future success.

15. Fire

The ones who don’t do their research and always call you with questions about the product, they’re not worth your time.

If you have a large enough company, then it is worth your time to ask the order desk or sales rep for their top 10 complainers. Once they are identified, see how many profitable orders each of them has placed.

Your business can’t afford to hire people who don’t make you money. If they’re not making a profit, tell them: “You’re not qualified for this position.”

Increase Profit Margins

Retailers like to check their profitability every few months, but they don’t always do it.

  • After a complete physical inventory, I found out that there was enough money on the sales floor.
  • It’s been a little while since the holidays have come and gone, but it feels like that time has flown by.
  • As we approach tax season, I’m going to share with you some of the mistakes that other entrepreneurs have made.


The profit margins in retail stores can be improved by cutting down on unnecessary costs and increasing the number of items sold at a good price. The higher-priced products are just as hard to sell if not more so.

With these tips, you’ll be in business for years to come. But don’t forget that training your staff and making the customer experience as good as possible is also important.