No Margin for Error
Do you know what gross profit margin you need to keep your business in business?
Many retailers don’t. They wait until month’s end to calculate their margin, crossing their fingers and hoping it covers their expenses, while providing enough revenue. Some get lucky, some go bust. We’d call it gambling, but gambling takes more foresight!
Instead, take the opposite approach. Instead of reacting to margin when it’s too late to do anything about it, actively influence margin by managing it ahead of time. You can:
Set margin targets on an item level basis
Retailers often use average margin across all items in the store as a target. But every item does not contribute equally to average margin, so if you have a run on items with smaller margins your monthly average can plummet below expectations.
It’s better to set target margins on an item level basis. Study sales history so you know which items move, which don’t, and at what margin. Adjust as you move forward to preserve maximum profitability across the store.
Let margin determine retail price
When you use item level margin values to set retail pricing, you win because your desired profitability is built right in. You may want to do a little rounding so an item gets priced at $4.99 instead of, say, $5.01, but that’s it!
Use quality C-store software
Item level margin management is done best with high quality backoffice c-store software. Calculations are performed quickly and accurately; target margins are stored, allowing the correct retail price to be applied upon delivery and sent to the POS while shelf tags are printed. Tailored sales history reports are always at your fingertips.
Understanding Gross Margin and How it Can Make or Break your Startup