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How to Expand Your Profit Margins with Inventory Management

Businessman using touchscreen

Analyzing your sales can make a big difference in maximizing your inventory management efforts to achieve high profit margins and increase sales volume.

An article on The Strategic Sourceror website explains that increasing profit margins starts with pinpointing the most profitable customers. A sales analysis will usually reveal that “80 percent of a company’s sales are driven by 20 percent of its customers,” according to the article. This shows that it really pays off to segment customers and focus on that 20 percent.

When it comes to segmenting customers, there are many factors for retailers to look at. Not only must you look at what customers have purchased, but also how they went about buying those products. Do they only buy products when they’re on sale? Customers that buy the most products aren’t necessarily profitable customers.

The key to pinpointing your most profitable customers is by examining their purchase histories. Identifying profitable customers also takes content strategy, meaning communicating specific marketing messages to individual customers. That could mean targeting a product discount to customers who have shown that they frequently purchase items on sale.

The same holds true for inventory management. The next step in increasing profit margins is determining which products and customers are performing in terms of improving sales margins and purchases. A retailer could decide to discontinue products that are not increasing the store’s profitability or may no longer focus on the customers who are not helping a store reach its profit goals.

Remember that a high sales volume doesn’t always equate to a high profit margin. But such products could serve a purpose as loss leaders. For example, perhaps milk is always on sale to entice customers to the store. The hope is that customers will pick up other, higher margin products on their journey to the back of your store to get the milk that is on sale. But if you have inventory with a low profit margin that’s not bringing people in the door, then it might be time to discontinue the product.

By analyzing the customers and products that make up your sales, you can improve your inventory management and boost profitability.

Source: The Strategic Sourceror, July 2013