Margin Protection: Defending Your Profits Under Pressure

Margin pressure typically comes from four sources:

1. Cost inflation — supplier prices, shipping, energy, or labour costs rise

2. Competitor discounting — a competitor drops prices and pulls customers away

3. Volume decline — fixed cost absorption falls as fixed overheads spread over fewer units

4. Mix shift — customers shift toward lower-margin products in your range

For each cause, the right response is different. AskBiz helps you identify which is driving margin decline before you react.

When your costs rise, your options are:

1. Pass the cost through via a price increase — often necessary and more acceptable than businesses fear. Communicate clearly and give customers advance notice.

2. Absorb and offset through efficiency — find cost savings elsewhere (packaging, shipping carrier, supplier negotiation) to avoid a price increase

3. Reformulate or resize the product — reduce the size/quantity at the same price ('shrinkflation') — common in FMCG but risky for branded products with loyal customers

4. Adjust your mix — actively promote higher-margin alternatives in your range

Use AskBiz: *'How much has my COGS per unit increased over the last 6 months and which products are most affected?'* to quantify the pressure before deciding your response.

Resist the reflex to match every competitor price cut. First, gather data:

• Have your conversion rate and sales velocity actually declined since the competitor's price cut? (AskBiz can show you pre/post comparison)
• Is the competitor's lower price sustainable, or are they burning margin?
• Do your customers actually compare your product with theirs, or are they different enough that the comparison doesn't happen?

If your conversion rate has not fallen, do nothing. If it has fallen, consider: improving value signals (photography, copy, reviews) before reducing price. Price cuts are permanent margin damage; improved positioning costs less and lasts longer.

Build a monthly margin review into your business routine:

1. Ask: *'What is my blended gross margin this month vs last month?'*

2. Ask: *'Which products had the biggest margin decline this month?'*

3. Check the Landed Cost Calculator for your top 5 products — have supplier or shipping costs changed?

4. Review average selling price by product — are promotions or discounts pulling down actual selling prices?

5. Review returns rate — rising returns directly reduce effective margin

Monthly margin reviews catch problems early, when the options available are broader. Discovering margin erosion at year-end limits your responses to damage limitation.