Stock is the lifeblood of any business, and if you want your business to succeed, you need to be able to maximise your margin.
It can be as simple as changing a product up, or as complicated as re-engineering an entire process. Or, see what your competitors are doing and try to outdo them. Or try and find a supplier who can provide cheaper materials. The list goes on!
Making sure your margins work for you can be a challenge, but there are some things that you can do to ensure that margin maximises.
Why Try & Maximise Margins?
Did you know that Only 43% of small businesses track and manage their inventory (Package X)?
This is a big problem.
Without efficient inventory tracking, it is difficult to produce accurate reports and financial forecasts.
Profit margin is an important metric to monitor while you’re operating your business and is a common “soft spot” for many business owners.
Knowing how much of every dollar that comes in is going to the bottom line and is essential to determine whether your pricing tactics are working.
While your competitive rivals aren’t always focused on the bottom line, you need to be! It’s critical that you know the margins your business generates, and it is also equally critical that you’re constantly working to optimize them.
So, without further ado, here are the Top 10 Ways to Maximise Margin in Stock.
1. Monitor Your Margins
Don’t just track your cost price by moving average in your accounts. Make sure you have strong sales analysis reporting that can track your gross margin at an item level per transaction.
You should be able to see your margin per item, per line, and per transaction in both moving averages and based on your last purchase price as cost prices change frequently – which can affect your margin.
2. Avoid Running Out of Stock
Keeping just the right amount of stock is critical. It is best to avoid overstocking and understocking your items and supplies.
Make sure you can see not just what you have in stock but what is already committed to customers and on orders from suppliers.
Be prepared to fulfil future orders by not running low in stock, so that you can commit stock from future orders for more immediate customer needs.
Running out of stock drives customers to other suppliers and will affect your margin as you try to win them back.
3. Don’t Let Your Stock Get Old
Whether your stock is perishable or not, having them sitting on your warehouse shelves for too long can reduce your margin.
Stock either goes out of date, out of fashion, becomes obsolete or simply ties up your working capital.
For companies that have perishable items, why not use Batch Traceability to monitor expiry dates and other stock-related information? For other items, make sure you can access stock ageing reports.
This will help you see exactly what’s been sitting around for too long and help you make decisions on how to get it moving.
4. Watch Currency Movement
If you buy your stock in a different currency to your own, then this can have a major impact on your cost prices.
For example, if you sell in dollars and buy in euros and the rate changes, so does your margin. Even after purchasing your stock, there are still possibilities of facing currency gain or loss on the amount invoiced and the payment rate.
By being able to track the last purchase price and monitor the currency changes, you can monitor how your cost price is affected by the rate movements.
It is also a good idea to be able to revalue your stock based on currency changes monthly so your stock valuation is accurate.
5. Track Raw Materials
It is no secret that many manufacturers store and add other raw materials to their products.
The costs of each of these raw materials can change. Therefore, it is important to monitor the total cost price of an item based on the moving average and the last purchase price.
This ensures that as these different items have their cost prices changed (or are susceptible to currency fluctuations), you can modify your selling prices to maintain margins.
6. Batch Traceability
Whether you distribute or produce items with expiry dates, being able to monitor batches of items or finished goods makes a huge difference to margins.
Tracking finished goods batches is a simple but important process. Even more important is to track the batches of raw materials. It is easy to overlook ingredients going into batches and picking newer batches than the old ones which later causes product wastage.
Batch traceability helps you to pick the right raw materials & finished goods to ensure you cycle your stock accurately and maximise the margins.
7. Perpetual Inventory
Here’s one for you! Perpetual inventory is the real-time tracking of your stock through the various stages of your supply chain, like being able to see what’s committed to customers and when.
What’s on order from suppliers and when it will arrive, managing returns, deliveries and having that information automatically updated to your Accounting is key to monitoring your margins.
Your software solution should be able to track and manage your stock from the office, the warehouse and out on the road to ensure you get real-time updates on exactly what you have and where it is.
8. Sell In Many Ways
More sales create more margin and so long as you track that margin, you can continue to drive margin by selling in many ways.
Selling online, in-store, from a van and allowing sales to process orders from the field makes it easier for your customers to buy more from you.
Having a single solution that brings all these together ensures you can meet the growing demands of these routes to market.
Ensure you can connect all these sources of sales to one single solution so that you can monitor these sales, maintain stock availability, and be able to fulfil them profitably.
9. Buy Better
Buying and making your stock better will always drive up margins.
Some stock items need to be kept close at hand in your warehouse to make sure you can deliver them efficiently. It is always a good idea to have a solution with multiple warehouses so you can keep it segmented. This could be different physical locations or simply to be able to keep bulk stock separate from pick stock, or sellable stock separate from returned stock.
For inventories you keep in stock, having a good and simple-to-use MRP (materials requirement planning) solution helps. This will advise you when your stock is running low and how much to replenish later. It will automatically create the orders for your suppliers (with your input of course!).
For the stock that you don’t keep in your warehouse, having a back-to-back process is invaluable. This allows you to create a purchase order directly from a sales order.
Little bonuses are the ability to tag your customers’ addresses for shipping so you can send the items directly to them and being able to change the cost price because you managed to negotiate a better price.
Overall, buying or replenishing stock is important. The purchases that you make will largely contribute to the margins that you’ll have. Buy well, buy as little as possible to meet demand and monitor how long it sits in your inventory.
10. Gross Margin Is Where the Profit Is
Some companies look at revenue to see how they are performing, but the ultimate measure of business performance is gross profit. The amount, the percentage and the conversion of that to cash.
Revenue doesn’t matter if your percentage gross profit isn’t high enough. It is possible for you to sell many products, but not make any margin. Overheads are generally fixed so if your gross margin drops by 5%, that could negatively impact your net profit.
One way to deal with this is to track all your sales at a gross margin level. Sales gross margin will be different from your accounting gross margin typically, so make sure that your software can track the margin in sales.
This is a more real-time and up-to-date margin position – especially if your solution can track margin by last purchase price rather than the moving average method.
Monitoring your gross margin to ensure the increase of net margin is the greatest tip you can get. A 1% increase in gross margin might not have a major impact on the selling price but it can make all the difference to your bottom line.
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