The profit margin is better known as the bottom line. You’ve heard it all before, the bottom line matters the most. But, does it really? A low-profit margin is attractive to some investors because they get a lot of advantages. For example, if the cost of doing business is a lot, and the profit margin is low, this can mean you can spread your wings wide. You have a lot of the market share and brands trying to move into your space will have a tough time spending as much money as you do; comparably of course. However, some investors don’t want to work with low-profit margins because they don’t get as much in return despite getting a reliable income. So how should you approach your own profit margin?
Depends on the industry
There is no margin that is set in stone for a particular type of business. If anyone tries to convince you, you should be getting X% of profit because you are in X industry, don’t listen to them. It all depends on your product types, services, size, industry and years doing business. A new brand cannot expect to have a 10% profit margin despite having better products than a larger better-established business. It takes time for your marketing campaigns to take effect, for your brand name to become recognizable and for your products to receive reviews online that support a higher price. A mature company will have a brand-recognition advantage with customers, so you cannot expect to make a higher profit until you can overtake them.
Beating to the punch
If costs of making products are due to increase, and you have done your research regarding this, then you should do a targeted increase in products. Pick the best products you have, i.e. the products that are popular, have a high return on investment and thus a better profit margin.
Utilize modern margin optimization techniques which will maintain the margin of your products through industry-wide increases such as in raw materials, regulations, supply chains, etc. set a margin-adder to your products so you remain sensitive to the price you should set depending on the market environment. If costs of making the products go down or up monthly, the margin adder will lower or raise the price accordingly to the margin you set.
Increase minimum order quantity
There are countless ways to subtly increase your profit margin. Setting an order quantity before free delivery is offered is a great technique. Work out how many customers you receive, how much they need to spend before you see your desired profit margin and act accordingly. For example, set an $80 minimum before free delivery is offered in popular product categories. Clothing companies do this all the time during seasonal changes, by grouping the most popular products together in their minimum order quantity strategy.
Your profit margin can be approached in so many ways and you don’t have to be dogmatic. Your profit margin can be affected by maturity, industry, set margins and sales tactics. Learn to choose the best strategy that suits your margin goals.