How To Increase Your Gross Margins without killing your Revenues
If you want to increase gross margins by increasing price (you can work costs down too), you need to be careful with how you manage these price increases.
If it's been awhile since you made price increases and you have flexibility in how you price items (some manufacturers demand MAP so find out first if you under MAP requirements or not), you can take the following steps to increase your margins without a lot of price elasticity testing and complexity.
1. Grade your products. Grade your items an A, B, C, D and F using these three factors - Demand (Units Sold), Gross Margin $, Revenue $ from the units sold. The top 70% will receive an A, next 15% receive a B, next 7% receive a C, next 5% receive a D and the last 3% receive an F.
Give As for each metic 5 points, Bs 4 points, Cs 3 points, Ds 2 points and Fs 0 points.
Weight Demand as 60% of your total weighting, Gross Margins as 25% of your total weighting and Revenues at 15%. Each product should now have a total points. Sort by highest to lowest points and apply the Grade with the same percentages as above again to this newly sorted list.
2. You might choose to rid of your Ds and Fs or turn them into drop ships (if they aren't already) to reduce the inventory costs. If you choose to get rid of them, drop prices by around 10-15% every 2 weeks to 1 month to rid of this inventory quickly. If you turn them into drop ships, take a look at the competitive landscape and be sure you are not overpriced on any of these items.
3. Cs are just middle of the road. Drop prices by 5-10% to see if you can spark some sales into these.
4. Take your Bs and decrease prices by 2-5% to see if you can increase sales. Also take a look at Bs images, content and competitive landscape to improve the opportunity of selling these.
5. Now on to your As. Be careful with this group. It can make the most impact. Understand the competitive landscape and if you can modify prices on any of these. If you can, increase prices slightly (start with 3-5%). This is where you will get higher gross margin $.
Practice this procedure first and then put this in place every 90-180 days. Track As on a weekly basis to look for demand decreases and/or gross margin $ increases, Bs/Cs on a monthly basis and put your Ds/Fs into a Clearance category to get rid of that group of items.
You can always reach me at heartlandgirl21 on yahoo mail. Have a good one!
If you want to increase gross margins by increasing price (you can work costs down too), you need to be careful with how you manage these price increases.
If it's been awhile since you made price increases and you have flexibility in how you price items (some manufacturers demand MAP so find out first if you under MAP requirements or not), you can take the following steps to increase your margins without a lot of price elasticity testing and complexity.
1. Grade your products. Grade your items an A, B, C, D and F using these three factors - Demand (Units Sold), Gross Margin $, Revenue $ from the units sold. The top 70% will receive an A, next 15% receive a B, next 7% receive a C, next 5% receive a D and the last 3% receive an F.
Give As for each metic 5 points, Bs 4 points, Cs 3 points, Ds 2 points and Fs 0 points.
Weight Demand as 60% of your total weighting, Gross Margins as 25% of your total weighting and Revenues at 15%. Each product should now have a total points. Sort by highest to lowest points and apply the Grade with the same percentages as above again to this newly sorted list.
2. You might choose to rid of your Ds and Fs or turn them into drop ships (if they aren't already) to reduce the inventory costs. If you choose to get rid of them, drop prices by around 10-15% every 2 weeks to 1 month to rid of this inventory quickly. If you turn them into drop ships, take a look at the competitive landscape and be sure you are not overpriced on any of these items.
3. Cs are just middle of the road. Drop prices by 5-10% to see if you can spark some sales into these.
4. Take your Bs and decrease prices by 2-5% to see if you can increase sales. Also take a look at Bs images, content and competitive landscape to improve the opportunity of selling these.
5. Now on to your As. Be careful with this group. It can make the most impact. Understand the competitive landscape and if you can modify prices on any of these. If you can, increase prices slightly (start with 3-5%). This is where you will get higher gross margin $.
Practice this procedure first and then put this in place every 90-180 days. Track As on a weekly basis to look for demand decreases and/or gross margin $ increases, Bs/Cs on a monthly basis and put your Ds/Fs into a Clearance category to get rid of that group of items.
You can always reach me at heartlandgirl21 on yahoo mail. Have a good one!
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