Look After Your Margins!
Running an e-commerce business? Then knowing your product margins is essential. Sales figures may look impressive, but are you actually making money? Without understanding your margins, you could be working hard for little to no profit.
What Are Product Margins?
In simple terms, your product margin is the difference between what it costs you to make or buy a product and what you sell it for.
But it’s not just the price you pay for stock—you also need to factor in things like labels, factory extras, shipping, packaging, and import duties. Only once you’ve accounted for all these costs can you see your real profit per item you sell.
If you’re not keeping a close eye on your margins, you risk having great sales but little return.
Why Margins Matter…
1. Profitability Over Popularity
It’s easy to focus on selling large volumes, but high sales don’t automatically mean high profits. A best-selling product with thin margins won’t help your bottom line. Instead, you need to focus on profitability, not just popularity. Revisit pricing or renegotiate with suppliers to improve margins where needed.
2. Cash Flow & Flexibility
Healthy margins give you the cash flow and flexibility to reinvest in growth. You can adjust prices to stay competitive or invest in marketing, customer service, and stock without feeling the pinch. Poor margins? They leave you struggling to cover basic costs.
3. Smart Scaling
Scaling a business with weak margins is risky. More sales come with higher costs—extra storage, staff, and shipping. If you don’t have strong margins to start with, scaling will expose these cracks and lead to cash flow issues down the road.
How to Improve Your Margins
Now that you know why margins matter, here’s how you can improve them:
1. Review Supplier Costs – Renegotiate terms with your suppliers or look for alternatives that offer better pricing or discounts on bulk orders.
2. Increase Prices – Consider raising your prices, especially if your products are undervalued. Many customers are willing to pay more for quality and convenience.
3. Cut Unnecessary Costs – Look at your operational costs. Can you save on shipping, packaging or those expensive labels? Even small reductions can make a big difference to your margins.
4. Improve Operational Efficiency – Automate tasks where possible, streamline your supply chain, and reduce waste in the process to lower overall costs.
TIP >>> Work out the price you want to sell for and the margin you want to make. Then from those you can work out your target product cost. Use this information to negotiate a better price with suppliers or find a new one!
At the end of the day, knowing your product margins is key to making informed decisions. Focusing on profit over sales volume will keep your business sustainable, even when competition is fierce. By improving your margins, you can build a resilient, scalable business with room to grow.
Look after your margins, and your profits will take care of themselves.
At Scotch Accounting we work closely with ecommerce businesses to pressure test their margins and given them the information and guidance to improve their profits.
We’re here to help you drive your business forward, using our expertise not just to keep your accounts in order, but to offer real insight and guidance that empowers you to make smarter decisions, embrace new opportunities, and grow with confidence.
