How to get high profit margins: calculate your retail margins by using this simple formula, and you’ll never look at products the same way again.
You’re business owner, which means you wear a lot of hats. From marketing to inventory control to employee management you’re busy. Really busy. With so much on your to-do-list, wouldn’t it be nice to know that the sales you make are giving you the best possible return on their markup?
In order to help you achieve this, you must first consider what margins you currently have on your inventory – then identify ways to strengthen your margins for stronger business success.
Margins 101: What Are Margins?
Calculating product margins measures the relationship between the costs you pay for your inventory and the price you charge your customers. Many merchants believe that a strong margin is double the cost of an item – so if you purchase something for $5, selling it for $10 is a nice return. Other merchants, for example, aim to gain higher margins to help them gain stronger profits. That same $5 item could be retailed for $15, $25 or even $50 based on a variety of reasons. To help understand how to get high profit margins in more detail, consider the below examples.
Still not convinced? Here are 3 Reasons Why You Need High Margin Products in Your Shop
Example #1: Staying In Your Comfort Zone
You attend a trade show you’ve have been visiting for years because the vendors you see are familiar and the comfort of knowing what items you’ll will discover makes your job that much easier. You budget your open-to-buy dollars based on past sales from your store and order items you know will sell. The costs of the items offer a traditional markup, therefore delivering a traditional margin.
Goal: Look beyond your comfort zone to identify a tradeshow that introduces you to vendors that will allow you to markup inventory with above average margins.
Example #2: Buying Name Brand Products
Merchants become attracted to name brands for a variety of reasons. Among them include the brand awareness consumers already have of them and the marketing efforts that are often made from these same brands in the mass media. Due to their recognition, however, their price points are often fixed and are not able to be marked up any higher than the manufacturer’s suggested retail price (MSRP). As a result, the margins on these items are limited and there is no wiggle room for items to be marked up any higher. Buying brand names typically limits margin opportunity.
Goal: Identify vendors that are not brand name, but still deliver the on-trend styles and other necessities to meet your retail goals.
Example #3: Limited Inventory Assortment
Retailers often have a niche – such as craft, fashion, gift + novelties, or home goods. These niches are ideal for many reasons, particularly because customers often seek retailers that sell a general category of merchandise. Customers are also known to buy things impulsively and enjoy discovering complimentary items to niche categories.
A keychain, for example, that says, “Obsessed With Crafts” would be a great addition to a craft store. Likewise, novelty items can include postcards, coasters and more can complement nearly any other category of retail. An added benefit to them is that when merchandised well in a store, they create the perfect add on sales. Even better? Many of these unexpected items offer strong margins, especially when sourced at the right trade show.
Goal: Consider items that can complement your niche product assortment as a way to enhance your store merchandising while increasing sales in your store – with a goal to also only introduce high margin items into this assortment.
While each of the above examples vary, they all have one thing in common – the opportunity to improve buying best practices to increase margins in your store. After all, wouldn’t you like to have margins as high as 100%, 250% or even 1000%? The best way to do this begins with where you source your inventory and who you buy from – and calculate your margins accordingly. The right trade show, the right vendors and the right assortment of inventory can help you do this.
Watch this video for even more advice on how to learn high profit margins:
Want to learn more about margins and fill your shop or site with in-demand, high-margin products? Get your free ticket here to the next ASD Market Week in Las Vegas – a B2B merchandise trade show and free retail education conference in one! 2,600+ booths of fashion accessories, beauty, gifts, novelties, general store, and much more.
By Nicole Leinbach Reyhle
Nicole Leinbach Reyhle is co-founder of the Independent Retailer Conference (which takes place inside ASD Market Week), a columnist for Forbes, and publisher of online magazine Retail Minded.