10 Questions You Need to Answer If You’re Looking for A 20%+ Profit Margin
Perhaps one of the best ways to measure how your business is thriving is to take a closer look at how much profit it’s making. After all, if you’re not constantly increasing your profits, then your business is most likely stagnating.
Not considering any external factors, how can you really guarantee a high-profit margin? It’s not like you can follow a simple set of rules with the reward being that you get an increase in your net profit.
We’ve got the next best thing, take a look at these 10 questions, your answer will actually give you all the tools you need in order to guarantee a 20% or higher profit margin!
How Can You Tell You’re Selling the Wrong Product?
If you’re selling multiple products in your inventory, it might be possible that you inevitably have to mark down some products in order to move sales, which are huge profit killers.
Markdowns are when you reduce a product’s price drastically from its starting point, oftentimes reaching a 50% discount on products.
That’s because products that require a markdown often slow down the production process and take up space without providing any profit incentive.
That’s why figuring out if you’re selling the “wrong” product is essential to improving your profit margin. Start by having a clear view of the products you already have, figure out which of them are fast sellers, and which take a longer time to sell, even if their selling price trumps the production cost.
By understanding your fast and slow-selling products, you’ll be able to make changes that help you sell more products and remove the need for any markdowns!
Do Your Customers Trust Your Product?
Your reputation is a huge factor in determining your sales, which directly affects your profits…
If your product prides itself on being the cheapest, that alone will not help you improve your profit margin!
Your customers need to feel like they’re buying something trustworthy, even if you can’t guarantee the highest quality product on the market for your price point, you should make absolutely sure that your product is the best one in its price point.
You want your customers to trust you so much that when they look at a higher-priced product, they automatically label it as unworthy, since your product offers so much value at such a low price.
That’s why you should never underestimate the power of trust in a brand.
What’s Your Average Order Value?
You’ve probably seen the “People also buy this” section when you’re browsing products on Amazon, or maybe you tend to buy a couple of tic tacs whenever you visit your local grocery store, after all, they’re right there when you check out, ripe for the taking with no extra effort on your end.
Average order value is the average amount a customer spends whenever they visit your website or a store, you might sell your product for $100. However, by adding a few tripwire products or even having a few accessories that match your product on display, customers tend to buy them while they’re checking out.
If your customer only buys your product and then leaves your store, then that means your average order value is as low as it can be!
You could try implementing some tripwire products on your landing page, such as accessories that fit your product, or a premium pack that adds a bunch of value on top of your main product.
Otherwise, you’ll be missing out on one of the best ways to improve your profit margins.
When Should You Increase Your Prices?
Increasing your prices is a great way to directly make more money with each sale. However, you might be wary of increasing your prices for fear of angering your loyal customer base or losing any future customers.
You might get that unfounded fear by comparing your own experiences when a brand you follow decided on raising its prices and that left you disgruntled. The fact of the matter is this, there’s nobody better fit to price your product other than you.
The decision to raise prices essentially depends on 3 main key points: Your product, the production cost, and your customers’ buying power.
If your production costs are getting higher due to external factors, then the worst thing you can do is lower your product quality, because that would be giving your customers a valid reason to stop interacting with you!
If your customer buying power increases for whatever reason, then offering a higher package with a higher price would be better for you in the long term. Since otherwise, they might not feel the need to buy your product.
Studies have found that 55% of consumers are ready to pay more for a better customer experience.
You should consider the types of customers you want to buy your product, how your product can appeal to them, how it tugs on their pain points and offers value, and finally you should take production costs into consideration.
After crunching the numbers, you’re free to decide on increasing your prices or if you’ll be better off sticking to their set price.
Which Do You Prefer, Smart Discounts or Personalized Offers?
If you’re wondering whether running that promotion is worth it or not, do it. However, you need to keep in mind that you need to analyze any of your promotions and compare them to your regular sales.
Think special holiday offers, how much has the order volume increased during the promotion compared to your normal sales? And most importantly, did the revenue increase due to the promotion you ran?
A great way to create smart discounts is through A/B testing, you could send half of your customers a certain offer, while the other would get a different one. By tracking the number of sales and clicks, you’ll be able to figure out just how effective one promotion is over another.
Timing also plays a huge part in whether a customer decides to buy your product or not. A lot of the time customers that browse your online store might go as far as putting their product in their cart and then getting distracted from any external source.
Now that their burning desire to purchase your product has diminished a great deal, they might forget about ever wanting to purchase your product. Or even worse, they might not feel the desire to purchase it anymore!
In that case, offering personalized offers is a great way to reign them back in, after all, if someone decides to invest $0 in your product, getting them to invest 70%-90% of the products worth would be an absolute win!
Send them an email with a discount coupon on that item that’s been sitting in their shopping cart for weeks. Or better yet, if you know what type of products they generally buy from your store, you could give them a 10% discount on all of that type of product, and see how much that increases sales.
Are You Inspiring Your Workforce?
A motivated workforce leads to a higher production output, which in turn can directly lead to an increase in sales. That’s not to say that your workers aren’t doing their job well enough, it’s just that most of the time they aren’t being as productive as they can be, and they can’t be blamed for that.
The problem might lie with a system that promotes processes that prevent production from moving on at a rapid pace, things like a layered chain of command that need to sign an approval form, or multiple people doing a one-man job, or vice versa.
Once you have a streamlined production system, you then need to work on motivating your team. That’s because nobody wants to do their best for someone that wouldn’t care about their efforts.
You can generally do that by training your staff on marketing practices, as well as performance boosting techniques.
Keep in mind that an incentive does wonders to a workers output, do you have a career map that highlights the tasks they need to do in order to be viable to a promotion? Better yet, do you have a great employee of the month rewards?
Did You Eliminate Production Waste?
By finding and eliminating areas of waste in your business, you can actually discover certain elements that are draining your capital and reducing your profits.
Generally, these are the 8 types of waste that can be found in your business:
- Defects
- Overproduction
- Unplanned downtime
- Not fully utilizing your team (See the above question)
- Unnecessary movement of your product
- Unnecessary movements of people, wasting time going from place to place
- Excess Inventory, or products that take too much space without getting sold (See above: How Can You Tell You’re Selling the Wrong Product?)
- Excess Processing due to having to repair defective products that don’t meet customer needs.
Once you’ve taken care of these 8 points, then you’ll have made sure that your business is waste-free!
How Often Do Your Loyal Customers Make Purchases?
If you only care about selling the product, and not cultivating the customer, then you’re losing up to 30% of your consumer base.
If your customer doesn’t feel a need to go back to your store after buying your product, then that’s a sure fire way to decrease your sales…
Research shows that most businesses only get 20% of their sales from their new customers. However, that number jumps up to 60%-70% for existing customers!
You need to offer campaigns and better products that attract your existing customers to continue shopping with you, after all, if they already trust your brand, they’d much rather shop with you than your competitors.
Are You Capitalizing on New Trends?
You need to keep in mind that the only constant in the market is change. Which is why you never want to appear as if you’re indifferent to the newest trends on the market, whether they be different platforms or a silly TikTok.
If you’re in an extremely versatile business such as a fashion brand or a clothing store, then you definitely need to be changing your product lineup as much as every week, if not every day for certain brands.
After all, nobody wants to buy yesterday’s product if today’s offer is to die for!
Can You Increase the Perceived Value of Your Product?
You should never consider your product as a done deal, even if you’re already selling pretty well to certain segments of society, that doesn’t mean you shouldn’t market your product differently to other segments.
You could do an A/B testing in order to find out the perfect perceived value of your product to different customers. For example, if you’re selling a laundry detergent to urban families, you’d obviously market it much differently than if you were selling that same detergent to the countryside, they have different problems that dirty their clothes.
We hope this blog helps you understand how you can reach the highest profit margin you can for your business! We’ll see you again in the next article.