Maximize Profits With Product Management
There are two ways to increase profits in a retail business. You can increase sales and you can cut expenses. Of course, increasing sales doesn’t necessarily mean selling more product. It means increasing your sales volume – in terms of dollars.
You know this. It’s a matter of dollars and cents.
You can sell 100 widgets for $5 each. If it cost you $1 each to purchase those widgets, then your profit is $4 per widget, or $400. (We’re assuming in that $1 all of your overhead and marketing expenses are included.)
Now, sell those widgets for $110 each and you increase your profits.
Another way to do it is to buy the widgets at 10 cents less, so your profits go up because your investment goes down.
You might have to buy more product to get the lower price on the widgets, which is fine if you can sell those products. For instance, if you buy 150 widgets instead of 100 at 90 cents each, then you’d better be sure you can sell 150 widgets. Otherwise, you’ll be stuck with product at the end of the month.
At .90 cents each, 150 widgets amounts to a $135 dollar investment (versus the $100 investment for 100 widgets at $1 each). If you sell only 100 widgets at $500, then your profit goes down. But let’s say you can sell 20 additional widgets at the $5 price. That’s a $600 return on a $135 investment. In other words, you spend $35 extra to make an additional $100 profit you would not have realized otherwise. And you still have 30 widgets left!
Is that a good investment?
Discount those 30 widgets and see what happens. You can sell them for half off and still see a profit.
These are the kinds of decisions you can make when you have a good product management solution on your team.
This has been simplified for illustrative purposes, but it should help you see how a good product management solution can assist you in making your inventory more profitable. Through a very detailed inventory matrix, you’ll be able to see things you couldn’t see before.