Businesses should always be focusing on increasing profit margins. Revenue might sound impressive, but savvy investors and business people always look at profit margins first. As they say – revenue is vanity, profit is sanity. This guide will look at some of the main ways to increase profit margins.
Avoid markdowns by improving inventory visibility
A markdown is a deliberate reduction in price to help a product sell. This can be done for multiple reasons. For example, a certain style of clothes might not be popular anymore, and a retailer wants to offload its stock. A markdown will encourage customers to pick the item up at a lower price. Many types of businesses use markdowns to get rid of unwanted stock. However, the obvious downside is that the profit margin is reduced on these sales. To avoid markdowns, it’s important to improve inventory visibility. This will allow employees to order the amount of stock needed and respond appropriately to market demand.
Elevate your brand and increase the perceived value of your merchandise
Brand value and perceived value are the perfect partners to increased profit margins. Think about high-end shoes as an example. A pair of Balenciaga sneakers can cost upwards of $1000, and a pair of New Balance sneakers typically costs less than $100. That’s not because the cost of manufacturing a pair of Balenciaga sneakers is 10X more. It’s because the brand value is higher. Sure, they might cost more to manufacture but not 10X more. Increase your brand value and your product’s perceived value, and you can charge far more for them.
Streamline your operations
Many businesses fail to think about the true costs of getting a product to market. It costs more than just the materials and manufacturing. You have to consider sales, marketing, R&D, admin, and every other operational cost in your business. With that in mind, streamlining your operations can lead to an increase in profit margin.
Increase your average order value
Average order value (AOV) is a metric that has become more talked about in recent years, thanks to the rise of e-commerce. It tracks the average amount that each customer spends when they place an order. By increasing the average order value, you increase the value of each customer. This will increase profit margins overall.
Keep manufacturing in-house
Manufacturing is a huge cost for many businesses. Reducing this cost can be one of the most significant ways to increase your profit margins. That’s why you should consider moving from an outsourced manufacturer to an in-house manufacturer. This will allow you to control the costs and increase efficiency where possible. To get started, you will need to price up the equipment needed, such as conveyor belts from fluentconveyors.com.
Increase your prices
There’s a reason that this tip is last on the list. Increasing your prices will increase the profit margin on each sale, but it could also negatively affect your business. Increased costs could drive away customers, allow competitors to undercut your prices, and damage your brand’s credibility.
James Daniels is a freelance writer, business enthusiast, a bit of a tech buff, and an overall geek. He is also an avid reader, who can while away hours reading and knowing about the latest gadgets and tech, whilst offering views and opinions on these topics.