One of the most important aspects of running a retail store – or any business – is focusing on increasing profit margins. Although premium cigars are not considered a fast moving consumer good like a bottle of soda,  it is important for retailers to focus on profit margins in addition to turn rates. For this month’s edition of the Retailer Corner, let’s discuss the importance of profit margins, and how you can increase profits for your business.

Revenue is obviously a necessity for any business. Retailers are always focused on increasing their revenue, but sometimes overlook the value of increasing profit margins. It can be very difficult to increase revenue during slow economies, or when facing an increase in competition locally. These are factors that are beyond your control, but you can control the profit margin by improving your buying habits.

Let’s say your current profit margin is 40%, and your revenue is $500,000 per year. If you can increase your profit margin by 4% you add $20,000 in profit. To see that same return-on-investment without increasing margins, you would need to gain an additional 10% or $50,000 in revenue per year. It can be very difficult to increase your revenue that much in one year, but by making small adjustments to your buying it is much easier to see that same return on investment.

One of the easiest ways to increase your profit margin is by buying product when it’s on deal. If brand x is one of your best-selling products, and is currently 10% off you should definitely consider increasing your buying of that product in that month. If your typical margin is 50% profit for that item, buying on deal makes it 55%. If an item has high turn rates then you should always buy heavy when on deal. Some of the most successful retailers will buy as much as three or four months’ worth of inventory when the monthly deal allows them to prolong that increase in margin. Santa Clara often has excellent monthly deals in our catalog that will allow you to save as much as 25% on some of the best-selling brands. These deals can help you increase your profit margin as much as 60%.

Another way to increase your profit margins is simply by focusing on brands that have good profit margins for retailers such as Montecristo, Camacho, Romeo y Julieta, Undercrown, Oliva Serie G, etc. These are all brands that offer retailers a healthy profit margin, and they also have good turn rates. There are, of course, certain brands   you should always sell that offer lower profit margins, but have greater turn rates. However, as a retailer I would be less likely to push my customers towards those brands unless I purchased them on deal. And if a brand has lower turn rates coupled with smaller margins you should consider replacing it with a higher profit margin product.

Thanks for taking the opportunity to read the latest edition of Retailer Corner. We’re happy to help all of our wholesale partners find ways to improve their business. We always believe that our success is dictated by the success of all our partners.