Helping eSellers to understand their business’s profits and how to instal best practice to affect them.
“Determining the best profit margin formula for a single product can help you figure out how to find net profit margin and improve profitability for your business. Here at Profitizer, we’ve developed a simple (and free!) tool to help you do just that. Go to www.profitizer.app to pick it up.”
In the second part of our blog series we’ll ask what is good gross profit margin, and what we can do to increase it…
So, what is a good gross profit margin?
A good gross profit margin for online retail is around 45.25%, according to NYU Stern School of Business. To reach a higher gross profit margin, you’ll need to develop a pricing strategy for your business.
Shopify’s profit margin calculator can help you find a profitable selling price for your product. It’s easy-to-use and leverages a simple profit margin formula to calculate what price you should charge customers for your product for an optimal merchandise margin ratio.
Determining the best profit margin formula for a single product can help you figure out how to find net profit margin and improve profitability for your business. Here at Profitizer, we’ve developed a simple (and free!) tool to help you do just that. Go to www.profitizer.app to pick it up.
So, what can you do to increase profit margins?
1. Reduce operating costs
Reducing operating costs is a quick way to increase profit margin and improve profitability.
The tricky part to reducing operating costs is knowing what to cut, because these expenses—like utilities, payroll, and rent—vary from business to business.
Start by auditing everything that’s running your business, including: labour costs; office space and utilities; employee benefits; equipment and maintenance fees; licenses and tax deposits; insurance -
then look at where you can cut back on expenses. Think about tapping into helpful software tools - to choose the right technology for your business, ask yourself the following questions:
What can I already do well? (For example, if you’re great at business financing, consider productivity or marketing software.)
What do my employees spend too much time on each week?
If I could take one time-consuming task off my mind, which one would it be?
Try to measure the impact removing an operating cost, such as a phone number on your site, has on margin improvement and customer satisfaction. Small business owners should always look for new ways to reduce operating costs without jeopardizing the quality of their store or making operations more difficult.
2. Increase the trustworthiness of your store to generate sales
Trust is essential for generating sales and increasing profit margins. Shoppers today have endless options to choose from when looking for a product, most of which are tracked by marketers and store owners. But trust is harder to measure and truly understand.
3. Increase your average order value
If you want to increase profit margin, focus on increasing your average order value (AOV). Average order value is the average dollar amount a customer spends per transaction in your store.
You can calculate average order value by using a simple formula: total revenue / number of orders = average order value.
4. Create a customer loyalty program
Customer loyalty programs are a surefire way to increase profit margins and improve profitability in retail and the service industry. As many as 84% of consumers say they would keep on with a company that offers a loyalty program. With that, 66% of customers state earning rewards influence their buying behaviour.
You can create a customer loyalty program to sell to existing customers rather than spend more money to acquire new ones.
6. Raise your prices
Raising prices is an intimidating idea when it comes to a retailer’s profit margin. If they raise prices, they assume customers will abandon them, sales will dry up, and the business will collapse into the dust heap of failure. If you’re reselling an existing product in your ecommerce store, a small increase in price can do miracles for your bottom line, especially if there’s market demand.
