A Retail Manager’s Guide To A Better Retail Profit Margin

With all the challenges you’ve faced in the past few years, it’s time to come back from that better than ever. 

According to CNBC, in July, retail sales fell by 1.1% due to fears over COVID. And you don’t want to be part of that statistic when it comes to your retail profit margin!

It’s no surprise that retail businesses were hit differently by the pandemic. If you were a grocer, you had to employ fast to meet the new demands. You were doing your best to fill up empty shelves while limiting items per customer. However, if you were in a clothing store, you had a totally different experience. You were forced to lockdown and possibly move to online sales. 

Even while operating differently during these challenging times, one thing remains the same, how do you calculate retail profit margin? What is a good profit margin for retail? 

And you have to understand why these questions are important. In short – Your retail profit margin is an indicator of whether your business is as efficient as it should be. 

So, understand the following: are you making the money you should be making? Are you undercharging? Are you overcharging? Have you understood your overheads correctly? And so on. 

It’s clear that your retail profit margin digs into every part of your business and plays an important role. The good news is that we looked into what profit margin is and efficiently explain how to calculate your margins so that it’s happy days from here on out. 

What Is Retail Profit Margin?

When you ask yourself, what is a good profit margin for retail? You first need to understand what the retail profit margin entails and how to calculate retail margin. 

Essentially, retail margin is the percentage that you take after you have calculated your costs. You need to figure out how much you will pay suppliers, overheads, and more to sell the product. 

Your retail margin is the gross margin when a product/service is sold. It’s calculated by the difference between the sales minus the cost of the goods sold. 

How to Calculate Profit Markup?

Even though they are similar, profit markup should not be confused with retail profit margin. 

When you are wondering how to calculate retail margin, your margin is calculated on the percent of sales made, whereas markup is the cost of the goods purchased with an added percentage to give you the final price. 

To work out profit markup, we share this example. If you sell t-shirts for $15 and pay $10 to the wholesaler, the difference between 15 and 10 is 5. So, if you take five and divide it by ten, you get a 50% markup. For every t-shirt sold, you will make 50%. 

Be sure to check with your competitors before pricing up to ensure you are not under or overcharging. 

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What Makes a Good Retail Profit Margin?

Now, how do I know what is a good profit margin for retail? And how to calculate retail margin? You have to consider your industry and the products that you choose to sell. If you shift your retail store to online, your retail profit margin can be higher as you don’t have to pay rent for a store. If you run a retail business, your margins are pretty high and can be as high as 6%. 

When setting your profit margin, too high of a markup may result in a higher profit margin. However, you might lose potential sales. Therefore, looking at the competition and finding the happy medium is key. 

Below we share a few tips to help you find that happy medium.

5 Tips To Enhance Your Retail Profit Margins

When you want to increase retail profit margins, you should try your best to avoid discounts. Often discounts can bring in cash fast, but they could hurt your business. 

When your stock is clearly on display, your customers have more chances of purchasing each product. 

If your business is online, you may consider having pop ups or related items underneath. This can entice customers to purchase items they weren’t originally coming to your store for. 

If you are a grocer, this step can be difficult for you, as you are working around perishable items. When wondering how to calculate retail margin? You need to consider the right time to offer the discount so that you don’t affect your profit. You also need to analyze your data which you can set up on your POS system. If products you stock don’t sell or are slow movers, you can consider whether you need to keep that product.

If you are smart, you can boost retail profit margins without changing your products. When you question, what is a good profit margin for retail? You simply need to change the perception of your company. When customers associate you with your brand, they think of you as a high-end brand or unique.  

It’s crucial that you find your niche and what makes you stand out from your competitors. In addition, you should work on your marketing efforts to ensure that you sell your business in the best way possible. Even if you aren’t a corporate company, you can change the perception of your customer. Either by changing your store layout, painting the walls a different color, etc.

Offering excellent customer service will keep customers coming back. By onboarding and providing staff sufficient training, they will become a true asset and bring in profits. When customers come into your store, and your staff knows the products, customers will enjoy the shopping experience. 

If you’re considering how to calculate retail margin? Your operating costs could be more expensive than you think! As a retailer, you are always coming up with ways to reduce costs and increase your retail profit margin. However, your costs might not actually be coming from your products, and they could be internal. By implementing an all-in-app, it can help you improve your profits. 

As a business owner, you don’t want to be paying for staff that isn’t needed. Apps such as Connecteam offer you all the features you need to increase the management of your business and staff. 

1. Scheduling – Save time and keep your profits in line with simple scheduling. Easily copy and paste previous weeks, leave open shifts to claim. Add videos, pictures, planograms, and more to the schedule. In addition, approve sick days and vacation days from desktop or mobile devices. 
2. Knowledge center – Provide all your training, manuals, company handbooks, planograms in your employee’s back pocket. Add any promotions, new lines, posters, etc directly on the app.
3. Forms – No longer play phone tag, sales assistants can record information from the sales floor and the office receives it in minutes. Inventory checklists, opening checklists, and more.
4. Updates – Use the updates feature to warn all your workers or sales managers that there are issues with a product, e.g. product recall, to move a product to a better location, last-minute promotion, etc. Also, the updates feature can be used to celebrate birthdays, team goals, personal achievements, and so much more. This is a great way to keep employees engaged and reduce turnover, which can eat into profits. 
5. Reports – You often want to know how many products are selling per hour. Connecteam’s reports allow you to set up a report for your sales managers to fill out. If you have multiple stores, you can compare which stores sold more and compare why. You can request pictures or videos without physically ever having to enter the store. Therefore, you can play with pricing, layout and change your retail profit margin accordingly. 
6. Task management – To maximize profits you can use Connecteam to assign specific tasks to team members. For example, if you create a sales playbook, you can set deadlines, target, and assign them to each member. 
7. Time Management – time theft and buddy punching could be costing your business. With Connecteam’s time-clock with built-in geofencing you know where your employees are at all times. You can work out your profit margin by knowing how many members of your team are completing overtime. You have the hours in front of you, so you can make on-the-spot decisions. Also, Connecteam’s integration with QuickBooks Online ensures 100% accurate payroll.
8. Training – Another cost in retail that eats up the profit is the constant onboarding and hiring. With Connecteam, onboard employees directly on the app. No longer print out the latest employee handbooks, courses, and other training materials. Employees download the app, and have access to it even while on the floor. When customers enter, they aren’t concerned if the employee is new. By digitizing your onboarding process, your employees are ready to hit the ground running. 

Once you have all the data on your business, you can find out what’s working and what isn’t, hence increasing your profit margins. 

When you have all the reports and the vital data from your business, you can look at which products have a low markup. Generally, if the markup is less than 20%, you know you need to shift in numbers. For example, if you are a grocer, milk may be a low markup. However, you can’t run your business without it. Some products are worth having for customer convenience. If you notice you are selling a product that has a low markup and isn’t that crucial, try eliminating it from your next order and see how customers react. 

How to calculate retail margin involves your suppliers, full stop. If your supplier provides you with 60-day trade credit, you can always try to pay before the 60 days are up, provided it’s possible. If you build a rapport with your suppliers, you can slowly ask for discounts or other offers. This will increase your profit margins, and you can keep your prices the same, which could entice customers to your store. 

Bottom Line On Retail Profit Margin

If you are running a retail business or thinking of opening one, your retail profit margin is what will make or break your business. Therefore, you need to scour each area of your business to find what could be eating into your profit margins. 

By adding technology into the mix and digitizing your process, you can receive information in minutes instead of trying to work out manually what’s selling and what isn’t. You no longer need to spend hours on the road driving to separate locations, you can open the app and have the information in the palm of your hand. Once you add technology to your business, you will be asking yourself, why didn’t I convert sooner?