Ten Ways to Build Profit When Raising Prices Isn’t an Option

2. TUNE UP YOUR PRODUCT MIX
Once you have your costs in the right buckets, you have the “high level” view of gross profits – your company’s overall gross profit, which is made up of the gross profit of each of the items you sold. This, in turn, adds up to the total gross profit of each of your product lines. This adds up to the gross profit in area, or department, of products or services. While you can measure your historical gross profit this way, ultimately the only way to really manage it going forward is to drill down backwards:

·  Total Gross Margin
·  Gross Margin by Department
·  Gross Margin by Product (or Service) Line
·  Gross margin of each SKU (or Stock Unit) or Job

Breaking down your gross margins in this way can help you identify which aspects of your business are helping you meet your goals and which might be getting in the way. For example, I once coached a jeweler who was a member of an industry performance group. He was distressed about his low gross margin percentage as compared to his group peers. He was also proud of his large watch department and the number of watches he carried in each product line. But when we took a look at the gross margins of each of his watch lines, we found that there were only a few that generated what he considered an acceptable margin. And in each line, there were even fewer styles in each watch line that sold on a regular basis and produced a good margin.

Although his margins in his other departments were higher than the group’s average, his low watch margins served to drag down his company-wide gross margin. As a result, he trimmed his watch department way back to only the top selling lines and in those lines, only the top margin producing and selling styles. As an extra bonus, he generated more cash from carrying a lot less inventory.

To do this type of analysis, you’ll need a good accounting system that can generate historical data that shows gross margin by department, by product or service line and by SKU (or job). A capable accounting professional should be able to get you set up to do this.

3. LOOK AT PRICING AND PRODUCT STRATEGY
As we noted earlier, economic conditions have resulted in downward price pressures that can make it very difficult to raise prices, especially if you carry goods or deliver services that are identical to everyone else. Customers can and will shop the competition in town and on the web for cheaper options. When you offer unique products and services, it’s a lot harder for them to price compare. You can’t be all things to all people. When thinking about adjusting your mix, think about what your company – and your company alone – can do particularly well.

Find other ways to add value to or customize your product or service. For example, some community pharmacies offer home delivery, a service that automatically coordinates prescription refills, and custom compounded formulations (with higher margins). Some retailers are creating more custom designs and offering first dibs on new products. Others offer other “add-on” products: warranties, cleaning, or “tune-ups” as part of their selling price. Small wineries are selling direct to market via wine clubs, thereby taking back margin that previously went to distributors.

All of these strategies have helped other businesses, at the very least, hold their prices, retain or even increase market share, and at times increase prices. The result: higher margins.