How much is a good margin for a retail store?

18 replies
I'm just curious

For a retail store, what is a good profit margin should they seek on their products?
#good #margin #retail #store
  • Profile picture of the author RobinInTexas
    It all depends on the industry. Many common ones are in the 30-60% range
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    ...Even if you're on the right track, you'll get run over if you just set there.
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  • Profile picture of the author fasteasysuccess
    Do you want the smart answer or dumb answer. The dumb answer would be just charge what everyone else is. The profitable and smart answer which I'm going to assume you want...

    It really depends on the industry but the smart and profitable answer is...

    How much value is it perceived as having and how much is the marketplace willing to pay.

    A lot of it is all about the positioning. The same old product could be the next big thing if positioned correctly.
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  • Profile picture of the author Claude Whitacre
    Originally Posted by socialentry View Post

    I'm just curious

    For a retail store, what is a good profit margin should they seek on their products?
    I own a retail store. Many of my friends do too.

    The answer is a little complicated. Some store owners always mark up what they sell by a specific percentage. They usually double what they paid for it.

    Me? I charge what I think it's worth, and based on where it fits in my product line up. Some of my retail products have a 50% markup. (meaning I buy for $1 and sell for $1.50)
    Some have a 500% markup (smaller sales). My larger sales ($300 & up) usually have a 100-150% markup. (Buy for $300, sell for $699)

    Appliances have a much smaller markup. And products that have a very strong brand usually have a very small markup (maybe 20-30%), because the company is paying for national advertising.
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  • Profile picture of the author PaulintheSticks
    You got some good answers here.

    The thing it took me a while to learn was that just because there is a "suggested" retail price doesn't mean you should sell your products at that price.

    The big challenge for retailers nowadays of course is the internet. If you don't have a competitive advantage (other than price), my guess is your chances of success are pretty slim in most cases because overhead is a killer. Unless its not practical to buy your product online or its prohibitively expensive to ship.
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    • Profile picture of the author Claude Whitacre
      Originally Posted by PaulintheSticks View Post

      You got some good answers here.

      The thing it took me a while to learn was that just because there is a "suggested" retail price doesn't mean you should sell your products at that price.

      The big challenge for retailers nowadays of course is the internet. If you don't have a competitive advantage (other than price), my guess is your chances of success are pretty slim in most cases because overhead is a killer. Unless its not practical to buy your product online or its prohibitively expensive to ship.
      Nothing s more a commodity than a vacuum cleaner.

      We bundle, and call the bundle by a name that they can't shop. We also include free services that they could never get online (or from a competitor)
      This bundle of free services is the best thing we do to keep people buying in our store.

      When we advertise, we show models they can't buy online...because that's when they go online to compare. Occasionally I'll stick a model in that they can shop online...and sell it at cost....or even less, just to make the rest of the items look like a better deal.

      Think of a lumber yard. They advertise 2X4s at cost, or even less. Why? Because that is the most common thing people shop prices on at a lumber yard. If you have a good price for 2X4s.."your prices must be pretty good on everything else".


      Also, I never give model numbers in ads. That's suicide. Because the model number is what gets shopped.

      Hope that helps.
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      • Profile picture of the author PaulintheSticks
        Originally Posted by Claude Whitacre View Post

        Also, I never give model numbers in ads. That's suicide. Because the model number is what gets shopped.
        It always pisses me off when the ad doesn't have model numbers lol
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        • Profile picture of the author tpgrm
          Every time I see this topic i wonder why people focus on only one half of the equation.

          For me, margin without sales velocity is meaningless. My margins could be great, but if I don't sell very many, so what. The business formula is: Revenue = Margin x Sales Velocity. Increase either element and you increase revenue.

          This brings in to consideration another element: Elasticity of Demand. Stated simply, the higher the price, the fewer will buy, the lower the price, the more will buy.

          In more general terms, Keystone Markup is considered the most common markup percentage. The definition of Keystone Markup is: Gross margin that is 100 percent of the cost price or 50 percent of the sale price. Any item selling at twice the price for it was bought or produced is said to have a keystone markup.

          Just my .02.

          Cheers!

          Terry
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          • Profile picture of the author Claude Whitacre
            Originally Posted by tpgrm View Post

            Every time I see this topic i wonder why people focus on only one half of the equation.

            For me, margin without sales velocity is meaningless. My margins could be great, but if I don't sell very many, so what. The business formula is: Revenue = Margin x Sales Velocity. Increase either element and you increase revenue.

            This brings in to consideration another element: Elasticity of Demand. Stated simply, the higher the price, the fewer will buy, the lower the price, the more will buy.

            In more general terms, Keystone Markup is considered the most common markup percentage. The definition of Keystone Markup is: Gross margin that is 100 percent of the cost price or 50 percent of the sale price. Any item selling at twice the price for it was bought or produced is said to have a keystone markup.

            Just my .02.

            Cheers!

            Terry
            Terry; My God! You really know what you are talking about.

            Yes, another facet of pricing is how it affects sales velocity. If you make 50% or profit, but sell a third as many...that's not a good choice.

            "This brings in to consideration another element: Elasticity of Demand. Stated simply, the higher the price, the fewer will buy, the lower the price, the more will buy."

            Very true, but it isn't a straight line. Selling something for $100 won't sell twice as fast as selling it for $200. Sometimes a lower price is more profitable, sometimes a higher price.

            It also matters where the product is as far as the lineup. If I sell something for $800, and something similar for $600..I may want to position a similar item for $750, just to make the $800 product easier to sell....or to make the $600 product even more attractive.

            There is a lot of science in pricing. Basically, what price gives you the most net profit per month? Not per sale....


            My retail prices are never a function of what I pay. They are a function of what I can charge to make the most money per month. This is a very difficult concept for some retailers to accept.

            Good stuff being shared here.
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            • Profile picture of the author tpgrm
              Thanks for the kind words Claude!

              As a retailer, I'm a big believer in using math to determine the best course of action. I develop spreadsheets to point me in the right direction. The challenge with using spreadsheets however, is to make sure they actually represent reality, not fantasy.

              Every time i watch Shark Tank invariably, some guy will start quoting fantasy math like: "If just one percent of so-and-so buy my product, I'll make x, which is followed immediately by jeers from the sharks.

              Up to .04 cents now...

              Cheers!

              Terry
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              • Profile picture of the author Claude Whitacre
                Originally Posted by tpgrm View Post

                Thanks for the kind words Claude!

                As a retailer, I'm a big believer in using math to determine the best course of action. I develop spreadsheets to point me in the right direction. The challenge with using spreadsheets however, is to make sure they actually represent reality, not fantasy.

                Every time i watch Shark Tank invariably, some guy will start quoting fantasy math like: "If just one percent of so-and-so buy my product, I'll make x, which is followed immediately by jeers from the sharks.

                Up to .04 cents now...

                Cheers!

                Terry
                Yeah, that's such a newbie idea "If only 1% of the universe buys, we'll make a million dollars a day". It's very close to the MLM idea of "If everyone we recruit only recruits two people...in year we will own the planet".

                Terry; I speak to groups of retailers often. Just the last two posts have shown that you are in the top 2%. I don't even need to hear more to know that.

                OK, Enough sucking up for one day. Good stuff on this thread though.
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                • Profile picture of the author tpgrm
                  Claude, now it's my turn to suck up.

                  I read your book "Local Online Marketing". If it was the only book I ever read on the topic, I am certain I would have all the information necessary to be successful. Great read.

                  I'll be sure to leave a revue on Amazon.

                  Thanks Claude!

                  Terry
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  • Profile picture of the author Digital Traffic
    Retail is a tough nut to crack now days.

    What type of products do you plan to sell, or niche?

    We had stores in malls for years, sold hundrds of products over the years.

    If I could give you one bit of advice that is always worth a try, I would introduce yourself as a wholesaler or distributor to all of your potential suppliers; many times they will offer you discounts of 20% to 50% right off the bat. The most common discount would be to offer you case price for buying each's.

    Many companies will have a minimum order amount you must purchase before they will offer distributor pricing, however, because of the economy, many can be easily talked out of that amount.

    You never know until you try.

    You will also need to find plenty of products that you can buy for $1 or less and sell for $5 - $15 to survive.

    Our best sellers were always wooden signs with various sayings that when we first started selling them we purchased them wholesale for $4.95 each and sold them for $12.95.

    Later, as we progressed in our business, we were able to source the same signs for .53 cents each and raised the price to $14.95.

    Bought tons of product from a company down Claude's way back in the day called Ohio Wholesale in Seville OH, they use to have a warehouse in Wooster OH that I would pick up from once in a while.
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    • Profile picture of the author Claude Whitacre
      Originally Posted by Digital Traffic View Post

      Retail is a tough nut to crack now days.

      What type of products do you plan to sell, or niche?

      We had stores in malls for years, sold hundrds of products over the years.

      If I could give you one bit of advice that is always worth a try, I would introduce yourself as a wholesaler or distributor to all of your potential suppliers; many times they will offer you discounts of 20% to 50% right off the bat. The most common discount would be to offer you case price for buying each's.

      Many companies will have a minimum order amount you must purchase before they will offer distributor pricing, however, because of the economy, many can be easily talked out of that amount.

      You never know until you try.

      You will also need to find plenty of products that you can buy for $1 or less and sell for $5 - $15 to survive.

      Our best sellers were always wooden signs with various sayings that when we first started selling them we purchased them wholesale for $4.95 each and sold them for $12.95.

      Later, as we progressed in our business, we were able to source the same signs for .53 cents each and raised the price to $14.95.

      Bought tons of product from a company down Claude's way back in the day called Ohio Wholesale in Seville OH, they use to have a warehouse in Wooster OH that I would pick up from once in a while.

      Pretty good advice here. Yeah, sometimes I find a product that I bought for $45, and sold for $99...from the source, for $8. I just buy in quantity and keep selling for $99. And of course, call several buddies that own stores and offer the product to them for $25. I've done that with several items.

      Would the place in Wooster be called Friendly Wholesale?
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  • Profile picture of the author bizgrower
    Some folks from Kansas were at my hotel today. They were telling me that outdoor clothing and gear sells for a lot more there than here in Colorado. So there's a location factor, what you are selling factor, and good old supply and demand. More demand and supply for outdoor stuff here.
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  • Profile picture of the author executed
    It depends on what product you are selling and how much stock you have to keep , generally things which stays good for long term margin of 40% is good otherewise you have to keep more margin
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  • Profile picture of the author Sugar Cube
    It depends on what product you are selling and how much stock you have to keep , generally things which stays good for long term margin of 40% is good otherewise you have to keep more margin
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  • Profile picture of the author misterme
    I only have a 10% mark up. If something costs me $1, I charge $10 for it.
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    • Profile picture of the author Claude Whitacre
      Originally Posted by misterme View Post

      I only have a 10% mark up. If something costs me $1, I charge $10 for it.
      Silly Rabbit.

      My new theory is to dream up a price that will get me on "60 Minutes" for raping the public...and then I add 10%....

      OK. Really. The percentage is immaterial. How much do you make in net profit per month? If raising the price, increases that figure...that's good. If lowering the price increases that figure...that's good.

      I had a friend that had a furniture store,and he was doing about $2,000,000 a year in sales, and netting about $200,000 for himself.

      I said "If I showed you how to instantly double your income, with no additional work, and no additional sales required...would you do it?"

      He said he would. I said "Raise your prices by 10%. Your customers will never notice, and you'll double your net income"

      The um...moron said "I can't raise my prices, I have the lowest prices in town".

      I said "I know. But you have the lowest prices by too much of a margin. Raise the prices by 10%, you'll still be the cheapest (the worst market position to be in), and you'll double your money."

      Nope. Too complicated. But I didn't give up.

      "OK, then let me help you get new financing. You're paying a 5% reserve on every finance contract. You'll never get that back. I'll increase your annual net by $100,000 this week. No charge. As a favor."

      Guess what? "Nope". He said that it was a cost of doing business.

      I knew what he was paying for everything (we almost became partners at one point). I told him that a 20% dip in sales would kill him in a few months. He wouldn't be able to make payroll, he had to increase his sale prices. Nope.

      The only thing he had going for him was that he genuinely had low prices on popular brands of furniture. But they were 30% lower than the stores I shopped (looking for comparables). I said "You know..20% less than everyone on Earth is still OK". Nope.

      He eventually had to close his store. He called me last Friday looking for a job. That's the only reason I remembered this.
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