Tinny Tots managed to boost its profit margins by an impressive 40%. Find out how they made it possible. Part of a larger manufacturing conglomerate, Tinny Tots has about 1000 baby products being sold on a range of online platforms.
But before moving into the retail space and focusing on one platform, the baby product company was mostly involved in wholesale. That’s until things became challenging. The company’s main concern was pricing, as the people in charge made the mistake of pricing the products based on competitors’ prices. This means that they didn’t consider their own profit margins and breakeven price points.
This all changed when the company started using an intelligent pricing software tool that can adjust prices in real-time and according to the most current market data. Instead of spending countless manual hours, the software can do all of that in a matter of minutes and do it better. This resulted in significant savings in labour costs, in addition to the higher profit margins that came with optimized pricing.
The good news is that you can do the same. Now, using software tools is only one strategy for boosting profits. Here are five more that you need to know.
The Five Strategies To Improve Profit Margins
Strategy #1 - Raise the Perceived Value of Your Brand
You may know that cosmetics companies have some of the highest profit margins. But do you know why? The main reason is that consumers perceive exceptionally high value in their preferred brands. These products help people to look and feel better about themselves. Critically, this feeling fuels customer loyalty.
Also, cosmetics companies are always hard at work at fostering personal connections with customers. But the same cannot be said of many other retailers. The point is that you’ll always need ways to reach out to and engage with your customers. As you do so, always make it a point to reinforce the value of your products or services.
Moreover, always foster client connections post-sales. Rather than blasting them with cross-sales offers, aim to provide valuable insights based on their needs.
Strategy #2 - Cut Operational Expenses and Improve Operations
This strategy is best illustrated with an example.
Crane Brothers is a menswear company that embraced automation to improve workflows. So, they decided to integrate their two software packages: Xero (accounting/invoicing) and Vend (point-of-sale). By doing that, the company can now transfer sales data to accounting in real-time.
What are the benefits?
This freed up a lot of time that the company rerouted to customer support and loyalty. Additionally, it cut down on errors and resulted in significant cost savings. By estimation, the automation software covers the work of two full-time employees per week. Imagine how much more money that would translate to for your own company.
Learn how to overcome the obstacles and ultimately grow your business. We invite you to our free strategy session, which will help you get a 360 ° view of your business under an ActionCOACH certified Business Coach.
Strategy #3 - Boost AOV (Average Order Value)
If your customers order more, there’s more profit to be made, right? Unfortunately, it isn’t as simple as that.
Getting people to spend more requires nurturing and an assessment of their needs. Amazon is one of the best examples here. It’s excellent at upselling, even for users who land on the platform for the first time.
The site prominently displays “Frequently bought together” and “Products related to this item” sections on each product page. That incentives' shoppers to order bundles that are either useful to them or present a better deal overall.
Another great example comes from Francesca’s. The women’s apparel brand features a “Complete Your Look” option on its website for shoppers to add other clothing items or order an entire outfit. Of course, the people at Francesca’s make sure that their most profitable products are always in easy reach for online shoppers.
Strategy #4 - Overhaul Your Purchasing Strategies
There are three ways to be smarter with your purchases:
- Always consider the final cost - when ordering items, keep the final cost in mind. If it doesn’t add up, look for a different item or vendor.
- Negotiate with vendors - any deal you successfully negotiate can boost your profit margin. For example, your vendor may offer free shipping, which would lower your cost. You’re even better off if you can save by ordering in bulk.
- Order more - to avoid stocking up on items that won’t sell, you can ramp up the order volume in smaller increments, perhaps based on the demand of your clients.
Strategy #5 - Creative Price Increases
Successful price increases usually involve a psychological tactic to make your offer more appealing. Again, it’s best to use an example here. When Footzyfolds, a footwear company, wanted to put a stop to knock-offs, what did they do?
The company created a luxury category featuring products with high price tags and simultaneously lowered prices in the everyday footwear category. The results were terrific. The owner claimed that the luxury category sparked the most interest with clients, resulting in a 100% increase in sales. This was coupled with a 50% jump in profit margins.
Don’t Trifle with Your Profit Margin
How about ending with a bonus strategy? Optimize your vendor relationships. You can enter a joint business planning deal with one or more vendors, for example. This means setting mutual profit goals with a vendor and creating a strategy to achieve those goals. This type of deal must create a win-win for both parties or it probably won’t happen.
Now, there are more strategic moves that you can use to boost profit margins. If you’d like to explore them in more detail, don’t hesitate to book a free strategy session today.
How we can help
Get the help you need to take your business to the next level with ActionCOACH. Our team of experts will work with you one-on-one to develop a growth plan tailored specifically for your business. Take advantage of our free strategy session today. Click here to learn more!
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