Gross Margin: Category A 50% (healthy), Category B 15% (dying slowly)
Retail store: electronics category SGD 1M revenue, 15% margin = SGD 150K gross. Apparel SGD 800K revenue, 50% margin = SGD 400K gross. Home goods SGD 500K revenue, 30% margin = SGD 150K gross. Blended: SGD 2.3M revenue, 31% gross margin = SGD 700K gross profit. Shift: reduce electronics 10% (low-margin, 15%), add apparel 10% (high-margin, 50%). New mix: electronics 35%, apparel 55%, home goods 10%. New gross profit: SGD 750K (+7%). ROI: reshift inventory costs SGD 2K, gained SGD 50K annual profit.
- What Is Gross Margin?
- Why Gross Margin Matters
- Identifying Low-Margin Products
- AskBiz Margin Analysis
- Calculating True COGS: What Most Businesses Forget to Include
What Is Gross Margin?#
Gross Margin % = (Price - COGS) ÷ Price × 100%. Example: electronics avg price SGD 500, COGS SGD 425, margin = (SGD 75) ÷ SGD 500 = 15%. Apparel avg price SGD 100, COGS SGD 50, margin = SGD 50 ÷ SGD 100 = 50%. Higher margin = more room for operating costs + profit.
Why Gross Margin Matters#
Must cover: operating costs (rent, labor, utilities), marketing, support, taxes. If gross margin 15%, after 10% operating costs, only 5% left for profit/tax. If gross margin 50%, 40% left for operating + profit. Margin = your cushion.
Identifying Low-Margin Products#
List all products/categories, calculate gross margin %. Rank by margin. Bottom 20% by margin are dragging profit. Action: (1) discontinue if no strategic value, (2) raise price if market allows (elastic test first), (3) reduce COGS (cheaper supplier, less waste).
AskBiz Margin Analysis#
Ranks products by gross margin %. "Electronics 15% margin (SGD 1M revenue = SGD 150K gross). Apparel 50% (SGD 800K = SGD 400K). Home goods 30% (SGD 500K = SGD 150K). Blended: 31% margin. Opportunity: increase apparel (high-margin), decrease electronics (low-margin). Shift 10% volume: lose 10% × SGD 1M × 15% = SGD 15K margin from electronics, gain 10% × SGD 800K × 50% = SGD 40K from apparel. Net: +SGD 25K gross profit (3.6% improvement)."
Calculating True COGS: What Most Businesses Forget to Include#
The most common error in gross margin analysis is an incomplete COGS figure. True COGS should include the purchase price of goods, inbound freight and customs duties, direct packaging costs, and any payment processing fees tied specifically to that sale — not just the supplier invoice price. A retailer buying electronics at SGD 425 landed cost but forgetting to allocate the SGD 15/unit inbound freight and 2% card processing fee (SGD 10) is actually looking at COGS of SGD 450, not SGD 425 — margin drops from the calculated 15% to a real 10%. This gap compounds across a whole category: on SGD 1M revenue, the difference between a 15% and a 10% calculated margin is SGD 50,000 of gross profit that either exists or doesn't, depending on whether your COGS figure is complete. Before making any mix-shift decision based on margin ranking, audit your COGS calculation for each category to confirm freight, duties, packaging, and payment fees are actually included, not just the headline purchase price.
Common Mistakes When Acting on Margin Rankings#
The first mistake is cutting a low-margin category purely on its percentage without checking its absolute gross profit contribution — a 15% margin category generating SGD 150K gross profit may still be more valuable in absolute terms than eliminating it in favour of a smaller high-margin category, especially if replacement volume isn't guaranteed. The second mistake is ignoring cross-category purchase behaviour: if electronics customers reliably also buy higher-margin accessories in the same basket, cutting electronics can quietly reduce apparel or accessories sales too, and the net effect on blended profit can be worse than the isolated category analysis suggests. The third mistake is assuming shifting inventory mix is instant and costless — reducing electronics stock and expanding apparel stock takes lead time, ties up different working capital, and carries execution risk (the apparel category might not actually sell through at the assumed 50% margin once volume scales up). AskBiz tracks basket-level co-purchase patterns alongside category margin, so a mix-shift decision accounts for cross-category revenue effects rather than treating each category as fully independent.
People also ask
Is low-margin product ever worth keeping?
Yes if: (1) high volume (offsets low margin, strong cash flow), (2) strategic (loss leader draws customers for high-margin items), (3) differentiation (complements brand). But: monitor closely, have exit plan.
How do I improve COGS for low-margin products?
Negotiate bulk discounts with suppliers, find cheaper alternative suppliers, improve production efficiency (less waste, faster time), reduce distribution cost (direct shipping vs warehouse).
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