If your store is experiencing high sales and low profits, you may need to re-evaluate your profit margins. Profit margin measures a retailer’s profit after subtracting cost from how much you sell the item for, if this number is positive then you are making money. As a business owner, you always want to maximize your profit margins so that you can maximize your revenue.
Sales are High but Profits are Low, What Should You Do?
Issues with high sales and low profits usually relate back to your store's product margins. Margins refer to the amount you spend on a good versus how much you sell it for. Simply put, when you subtract your cost of a good from the amount that you sold it for, the remaining amount is the margin. The goal of any business owner is to maximize their margins so that they are gaining as much profit as possible from every product they carry. For many businesses, combining the cost to ship and purchase the good while keeping it at a low price for their customers leaves them with little money left in their pockets. Factor in all the other expenses businesses have each month, and people can be operating in the red and losing money more often than they can afford to. If you find yourself in a similar situation, we have some options for you:
1. Raise Prices - This seems like an obvious option, but it only works if you do it sparingly. It is still important to offer low-prices to keep your customers interested in your business. Start by raising the prices on goods that you know will sell. Popular goods with a slight increase in price will bring you more money over time, rather, than a large increase for a short-term profit.
2. Close the Gap - Offering a wide variety of items can be a good thing for businesses, but sometimes it can cost you more money than what it is worth. Consider offering fewer items that move faster off the shelves than other goods that people may not want. Choosing to remove the products that customers aren't buying will also clear up shelf space for the things they do want.
3. Eliminate Waste - Waste does not always refer to the goods and what isn't selling. There can be waste coming from your staff. If you have four people doing the work that one or two could do, then that could be the cause of your lack of profit. Examine what your situation is outside of product purchase price and sale price. Avoid paying for things like overtime at all cost and schedule employees based upon your needs. If you expect to have a slow month then plan for that by scheduling the correct amount of people.
4. Analyse Your Purchases - Sometimes your low profit can come from issues with vendors or unnecessary payments each month. You may be paying top dollar for an accountant when you know that you could do it yourself. You might also pay multiple vendors for your products when you could bundle purchases with a few vendors and strike a deal for lower costs. It really comes down to attention to detail and, possibly, making small sacrifices here and there to keep your business profitable.
5. Examine Your Inventory - This may seem repetitive from tip number 2, but for some businesses, margin problems can come from things like theft. Generally, if a customer is stealing from your store you will not see a dent in your margins, but internal theft can cause quite an issue. This goes back to the last tip, which is, pay attention to detail. If you find that you are paying for more and more orders of a specific good, but there is no information in the system regarding that sale then you might just have an internal theft issue. Theft is not always taking something and running out the door, but some customers will use a product and return it after use in exchange for something else. Many stores have policies preventing certain items from being returned, but for those that do not, you could be at risk for being scammed by less than favorable guests.
There is a lot of information out there for businesses that can address the exact concerns you may have. One of the common ways to sold low-profit issues is by speaking with a financial adviser. These entities get paid to examine the numbers of your business and will often offer advice as to what you can do to preserve your business. For more information about how to deal with high sales with low-profit issues, Click Here.