8 tips to increase profit margins for retailers


Retail profit margins have been more relevant than ever lately. It all started with curbside pickup, the only way for many
stores may sell their products during the COVID-19 pandemic.

Now some experts are suggesting retailers add similar programs: “You really should offer social shopping.”

“Why don’t you ship and resend for free?” “You can’t deliver to a trunk like Amazon?” This advice is well-meaning but misinformed. If you’re anything like the retailers I know, you don’t have unlimited shareholder capital. Programs like these require funding — additional costs that you’ll have to make up for elsewhere.

Improving your retailers’ profit margin is a two-step process:

Step 1: Know your average profit margin (and a good margin to aim for). I’ll make it easy for you below, even if you’re not a “numbers fan”. Step 2: Implement these proven ways to increase your retail profit margin – no complicated or free programs required.

What is the trade margin? “If you don’t know your numbers, you don’t know your business.” –Marcus Lemonis

Here are the numbers you need to grow your business: Retail gross profit margin is the percentage of revenue that remains after deducting the cost of goods sold. It does not take into account additional operating expenses – it is the net profit.

Your retail margin is a snapshot of the overall health of your business. Plus, it shows how much revenue is going to your bottom line. If you don’t know your average retail profit margin, make an appointment with your accountant or bookkeeper. Also find out about operating expenses, variable costs and cash flow. If you want to improve your profit margins, start by reviewing your numbers regularly. It is much easier to arrive at your target destination if you know where you are starting from.

8 tips to increase profit margins

1. Raise prices
You don’t have to raise prices at all levels. Instead, selectively increase the cost of your most popular items. You will effectively increase your bottom line and also improve your profit margins. Your customers do not know the cost of your goods. Plus, they buy from you for the shopping experience.

PRO TIP: Are you one of the lucky retailers who have faced revenge buying customers? Scarcity gives you cover to increase your prices (if you have the goods). Don’t be afraid to do it.

2. Sharpen your focus
You can’t be everything to everyone, nor should you try to be. Consider the profit you make on slower moving items. Could you dedicate that space to faster, more profitable items? Yes!

3. Limit discounts
It’s tempting to look to discounts to make a sale. But markdowns can rob you of revenue — and they don’t increase profit margins. Discounts work, but sparingly. A quarterly promotions calendar is a good goal, for example. Post-COVID customers seem less driven by price than safety. Limit discounts.

4. Reduce waste
Are you hiring for jobs that your current staff could do? Do more with who you have, even if you’re not complete. Your retail profit margins will thank you.

5. Plan the retail employees you need
Do you have three employees opening when you really only need two? Are you understaffed on Saturdays when criticized? Make sure your employees’ schedules best match your store’s needs. Save money, but don’t risk losing customers to the competition due to poor service.

PRO TIP: With more and more people working from home, the conventional thought that Saturday is the busiest shopping day isn’t always true. Inform your planning with your numbers.

6. Award overtime based on merit
Grant employees overtime requests based on their average sales (or number of units sold per customer). It is better to reward the salesperson who helps you sell goods rather than saying yes to every staff request.

7. Give bonuses when they are earned
Pay bonuses based on profits, not total sales.

8. Sell added value by bundling products and services
Your customers value their time, so they will pay for valuable services related to the products you offer. People don’t want to bother figuring things out themselves. And they really don’t want to mess it up. Selling added value is the path to a very profitable future.


Most retailers assess operating profit margin several times a year. If you really want to increase your profit margins, anytime is a great time to review your numbers.

Improved profit margins for retailers don’t just come from discounts or staff reductions. Instead, limit unnecessary costs while increasing the number of items sold at the right price. This also applies to expensive products.

Be sure to train your staff and improve your customers’ shopping experience as well.

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By Bob Phibbs, The Retail Doctor. To learn more about the additional steps of a profitable retail business and Sales RX, visit retaildoc.com.


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