Find the hidden profits in your retail business

Making a profit from selling products or services is vital in any successful business. After all, healthy margins drive growth and ensure that wages get paid. But what about the hidden profits in your business? Emma Allen looks at how you can uncover potential sources of cash

Overlooking pockets of hidden profit is a common mistake made by small retail business owners who can end up focusing too much on day-to-day sales, according to Emma Warren, managing director of business adviser specialist Portfolio Directors.

‘It’s very easy to forget the real costs associated with selling something ― the price you paid for the item, how much it cost to ship the item, packing, delivery and so on,’ she says.

Know your true costs to increase profits

‘For that reason, consistently recording key management information is essential. It doesn’t need to be complicated ― simply note your sales levels, your purchase price and any direct costs related to that product or service,’ points out Warren. This will allow you to see the whole picture including your most profitable areas.

Once you’ve got a clear idea of what sells and how much money you are really making, it’s time to scrutinise other areas. One myth that Warren is keen to overturn is that profit is only measurable in cash terms.

How to increase profits

‘In retail, good customer service leads to profit and sometimes you may need to make a short-term loss in order to make a long-term gain,’ she advises.

‘For instance, offering free postage and packaging at Christmas might look like it’s eating into your profit margin, but it should lead to customer acquisition, which in turn will help grow your venture.’

Promotions and give-aways are another example. Offering a free goody bag or a heavily discounted service in return for customer email addresses should result in better targeted marketing activities, which in turn should lead to increased sales.

Spot trends quickly to maximise hidden profits

So what other techniques can be used to cash in on hidden profit?

For retail business owners, spotting trends and being quick to respond to customer demand is particularly important.

Warren advises talking to customers and suppliers to find out the latest must-have product or innovation, reading consumer press to stay abreast of new ideas and being ready to offer ‘on-trend’ promotions.

‘Be alert to what’s selling really well in your sector ― can you piggyback in some way, by offering a discount on a related product for example?’ she suggests.

Keeping a firm eye on every function within the business is also crucial for maximising efficiency, saving money and ultimately boosting profit.

‘While your personal passion might be sales and marketing, you’ve really got to get to grips with every department if you want to improve margins. For example, if £50 worth of your items are being broken in despatch every week, or your customer service is less than enthusiastic, it’s going to have a negative impact on the business,’ she warns.

Scrutinise your costs to find hidden profits

Scrutinising costs and overheads is another on-going essential task. Negotiating cheaper delivery slots from suppliers could help bring down overheads, for instance, while trimming stock levels on unprofitable lines could preserve cashflow.

Lastly, Warren says that keeping accurate sales records will help keep profit margins healthy and identify problems quickly.

‘It might be that raw material costs have gone up in the past six months, so you might need to increase prices to maintain your margins,’ she explains. ‘Or, if sales are low in a certain month, you might want to do a promotion. Online business-management tools such as Brightpearl or Quickbooks are aimed at small businesses and are easy to use.’