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What is a good profit margin?
Q. What is a good profit margin for a small retail store?
A. Although a retail store's typical initial markup on merchandise could be 40 percent or more, actual profitability takes into account all expenses, such as payroll, rent, utilities, insurance and advertising.
While large retail corporations usually have very slim profit margins (less than 2 percent in 2000), a small store typically needs a higher margin because of its lower volume.
A National Shoe Retailers Association (NSRA) survey, for instance, showed an average 3.5 percent net profit for independent shoe stores in 1999, the most recent year for which statistics are available.
But profitability varies widely from store to store. Expenses, not sales volume or initial markup, make the difference between stores with high and low profitability, the NSRA survey determined. Stores with high profitability spent only 38 percent of their total sales volume on expenses, compared to 45 percent for the low-profit group.
Higher expenses for rent and wages, for example, help explain why stores in traditional enclosed malls barely broke even in the NSRA survey, averaging 0.0 percent net profit.
