It is not just enough to boast of large sales volume, you want to know if your e-commerce business is worth your time. Making a profit and more income is why many people get involved in the e-commerce business. This article helps you to increase your sales margin to keep your online business generating profits.
What Is Sales Margin?
Sales margin is the amount of profit made on some products sold or services rendered. You add up all the costs incurred in providing the product or service. This includes production costs, advertising, logistics, labor costs, and other costs. The sales margin is obtained by deducting the total cost from the selling price of the product. The sales margin is also regarded as a profit margin on sales.
Different businesses may calculate their sales margin in different ways as the items which constitute the total cost for each business may differ. However, the sales margin is very simple to calculate. The sales margin is a strong indicator be of the potential profitability of a business. It also determines how well a business is faring compared to the competition.
How to Calculate Sales Margin
The steps below define how to calculate the sales margin of businesses in general.
1. Calculate the cost of goods sold (CGOS)
2. Calculate the total revenue generated from the sales of the goods
3. Find the gross profit by subtracting CGOS from be the total revenue
4. Divide the Gross Profit by the total revenue
5. Express it as a percentage.
In case you need an easier tool to help you utilize the profit margin on sales formula, use the Omni Calculator. It comes with the sales margin formula. You only need to enter the values to get your results. This sales margin calculator is fast, reliable, and easy to use.
How to Increase Sales Margin in E-Commerce
To increase your sales margin there is a systematic approach you can use to achieve your goal. Here, is a description of what is required of you.
1. Determine your current stand
Before you can decide to increase your sales margin, you need to calculate your current sales margin. Use the formula given above or the recommended tool above to calculate your current sales be margin. Once you determine your current state, you can begin making plans for where you want to go. Be clear about how much increase you want to see in your sales margin within a specific period.
2. Cut back operating cost
Operating costs are one of the biggest sources of worry for e-commerce businesses. Take into account by of the following:
Labor costs
Employee benefits
Office and utilities
Insurance
Maintenance and repairs
Taxes
You need to brainstorm on how to save money on each of the items listed above. You may, for instance, outsource some of your operations or resort to automation. You can also invest in new technology to save money on the maintenance of old equipment in the long run.
Tip: Choose selling products by dropshipping, you can effective cut storage costs, transportation costs. It would be better if your dropshipping supplier provides free delivery and great product recommendations so that you can run the business at the minimal costs.
3. Have a long-term perspective
While focusing on per-order profits may seem appealing, it is not as important as having a long-term perspective on increasing your sales margin. Your relationship with your clients is central to increasing your sales margin.
Do not turn down orders because the profit margin is too low. You can invest in the relationship by going the extra mile for your customers. This will help you keep your customers for longer and bring you lots of referrals in the long run. This is not to say you should, hurt your business by so doing. You can determine what extent you can afford to go for your customers such that your business will still run effectively.
4. Build your store reputation
Find more creative ways to improve your store reputation. Encourage satisfied customers to spread the word about your business. Upgrade your store to the latest version available. Be sure to ask for feedback from your first-time customers. Determine how to improve your store based on customers' suggestions.
5. Increase your average order value (AOV)
If your customers are used to purchasing a single item per time, chances are you have a low average order value. The average order value is the average dollar amount each customer spends on your business per purchase.
AOV = Total Revenue / Number of Orders
You can increase the average order value by creating bundles of packages that comprise of closely related items. For instance, if you sell kitchen equipment, consider grouping a set of kitchen items together to increase how much is spent per order on your store.
Give discounts on packages and display recommended products on each order page. You can also give discounts or points when customers order a specific unit of products.
6. Create a customer loyalty program
Focus on your loyal customers. Keep them happy because having more of them will impact your business more. Offer coupons, free shipping offers. You can also give points to loyal customers which they can use to redeem incentives. Research has shown that loyalty programs can help businesses retain more than 60% of their customers.
7. Raise your prices
Sometimes be the most feasible strategy for increasing sales margin is to increase the price. You should use this strategy with caution as your competitors may take advantage of the price increase. You can increase the prices of your products by a little fraction so your customers don't see it as though you were trying to rip them off. A slight increase in price can amount to a lot of extra cash on your profit margin.
Stay updated on what is happening in your market by studying your competition. Sometimes when new arrivals emerge, you get the opportunity to raise your sales margin than when selling regular items.
Conclusion
Focusing on your sales margin will help you when you need to scale your business. It also helps you to build stamina for your business against bankruptcy. Keeping track of your sales margin is key to building a sustainable e-commerce business in the long run.
