A margin is usually defined as an edge or border, but in retailing the term has come to mean the difference between what you pay to acquire an item (also known as the Cost of Goods Sold, or COGS) and the price that you set to sell it to your customers. The difference between the COGS and the retail price is referred to as the markup, but the margin is the amount of your gross profit once the item is sold.

The higher the margin, the more profitable the business is likely to be. Some retail industries have an average margin of 70% or more, and others – such as grocery stores – must find ways to try to make a profit at just over 2%  But even within a grocery store, this percentage varies depending on the lines of merchandise, and of course they usually do a high volume of business.  

For most retailers, a margin of at least 50% is necessary to be profitable.  The retail stores with the highest margins sell jewelry and other luxury items, in part because they have fewer transactions and their customers may not be as price conscious. For the rest of us, we need to consider the prices we set based on what our market will bear – and what the competition is doing.

Taking freight costs into account when setting retail prices is essential, especially now that those costs are increasing.  Buy items on sale so that you can get extra markup – this also helps compensate for those items that you’ll need to mark down.  Look for show specials, or sets of items you can break up and sell individually. Vintage goods are also a way to offer merchandise with a high margin, since there is not a fixed perceived value.

Since consumers vote with their dollars, you’ll know when your pricing strategy is successful.  If necessary, you can mark down items that are moving slowly – as long as the margin on the rest of your goods is high enough to keep you profitable.

Happy retailing, 

Carol “Orange” Schroeder