10 simple ways to improve your profit margins

Last Updated: March 5, 2023

Improving profit margins is important for any business. Aside from growth, it’s the most important way of making your business more successful. Without paying attention to profit margins, your business could be missing out on each sale. This guide provides 10 simple ways to improve your profit margins.


Make your inventory visible

By implementing an effective Product Information Management System (PIMS), you can make your inventory more visible. This allows you to minimize markdowns and respond to key shifting trends and demands. In layman’s terms, that means knowing exactly what products you have in stock, how in-demand they are, and how quickly they can be ordered in. The clothing industry is a great example of how visible inventory is crucial – when a new type of trainer (like Dad shoes) becomes suddenly popular, a business can move fast to push these on their website. Companies like Zara use this to great effect, often beating their competition by weeks.


Elevate your brand value

The most obvious way to increase profit margins is to increase price. However, if you increase price without good reason, you will probably see sales drop. Elevating your brand value will ensure that customers are more comfortable paying a higher price for your product or service. Elevating brand value can include simple things like designing a new logo to championing causes (e.g. Nike’s Colin Kaepernick campaign). This will help customers think of your brand differently and justify a higher price for products and services.


Streamline your operations

Streamlining your business operation is a sure-fire way of increasing profit margins. Outdated systems and processes can slow employees down, cause sales to drop, and decrease profit margins. Some solution providers – like trinityis.com – offer bespoke software solutions including everything, from CRM and project management to inventory and asset management. These solutions will make your business more efficient and ultimately more profitable.


Reduce expenses

Every business has expenses. Everything that your business spends money on is an expense. Reducing business expenses can be a complicated process, including everything from reducing office space to letting employees go. However, even small changes, like getting a better deal on your energy and gas, can make a big difference.


Increase your average order value

Increasing your average order value can dramatically increase profit margins. Average order value refers to the amount each customer spends. So, when a customer walks into a grocery store to get milk, the store is designed to encourage them to leave with more. The same goes for e-commerce stores. Amazon is famous for adding a ‘customers also bought’ section underneath the main product. This is called upselling and cross-selling. You’ve already invested in getting the customers to your store, now try and make them spend as much as possible.


Improve your purchasing practices

Most businesses purchase from other vendors. For example, companies that sell cleaning products have to buy the plastic bottles from somewhere. A great way of improving profit margins is to improve your purchasing practices. Buying in higher quantities will often allow you to negotiate a better price per item. You can also try asking the vendor for a discount or shop around for a better price.


Increase your prices

Increasing your prices might seem like the most obvious way to increase profit margins. Truth is, it requires careful consideration and testing. If you just go ahead and raise your prices out of nowhere, you might lose loyal customers that make repeat purchases. You could also encourage competitors to undercut you and take your business. There’s no hard-and-fast rule to combat this. Only you can know how much your product or service is worth and charge appropriately. If you are going to increase your prices, you should do it in small increments and test the impact it has on order quantity.


Improve relationships with your vendors

Many businesses focus on customer relationships and treat their vendors as an afterthought. Sure, customer relationships are important but your vendors are just as key to the success of your business. A good relationship with a vendor could secure your business an edge over your competitors. A bad relationship could result in a huge stock issue. Don’t be afraid to wine and dine your vendors. They might see through it but that doesn’t mean it won’t work.


Opt for personalized discounts

When you offer customers a discount, it can eat into your profit margins. Discounting items is a balance between higher-order numbers and reduced profit. Instead of offering blanket discounts, try offering your customers personalized discounts. You will need to look back through past orders and analyze your customer’s order history. Customers that responded to discounts and offers in the past will likely respond again, so send out an email directly to them. This might seem like a labored approach but it’s a great way of increasing order numbers without offering discounts to customers who would purchase anyway.


Inspire your staff

There’s a reason that big companies focus on staff happiness and team-building. Inspired staff means more sales and increased profit margins. Your employees are the heart of your business and if they are dedicated to the cause, they will work harder. It’s as simple as that.

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