How to Improve Your Gross Margin: 10 Practical Strategies for SMEs
Gross margin is one of the most powerful indicators of business health — yet many SMEs leave improvement opportunities untapped.
In this guide, we’ll cover 10 proven, actionable strategies you can start using today to strengthen your gross margins and boost your bottom line.
Why Focus on Gross Margin?
- It's easier and faster to boost profitability through margin improvements than through sales volume increases.
- Strong gross margins give you more flexibility to invest in marketing, people, and growth.
- Weak margins leave you vulnerable to cost increases and economic downturns.
10 Practical Strategies to Improve Gross Margin
1. Review and Adjust Your Pricing Regularly
If your costs have risen but your prices haven't, your margin is shrinking.
- Benchmark competitors.
- Communicate value to justify premium pricing.
- Implement small, incremental price increases rather than large shocks.
Tip: Test new prices with small customer segments before rolling out changes.
2. Focus on High-Margin Products or Services
Not all offerings are equal.
- Highlight and promote higher-margin products.
- Bundle products creatively to boost average order value (AOV).
Prioritising high-margin lines can significantly impact overall profitability.
3. Negotiate Better Supplier Deals
Strong supplier relationships can unlock:
- Volume discounts
- Early payment discounts
- Flexible payment terms
Tip: Schedule annual supplier reviews — loyalty should be rewarded with better rates.
4. Reduce Production or Service Delivery Costs
Streamlining your operations can lower COGS without sacrificing quality.
- Optimise inventory management.
- Cut unnecessary materials or steps in service delivery.
- Invest in technology that boosts efficiency.
5. Optimise Staffing and Productivity
Labour costs often inflate COGS.
Consider:
- Cross-training employees
- Introducing part-time or flexible shifts
- Automating repetitive tasks
Small workforce efficiencies can protect gross margins significantly.
6. Improve Sales Mix
Shift focus toward products, services, or customer segments that deliver the best margins.
- Analyse customer profitability, not just revenue.
- Upsell and cross-sell higher-margin items.
Smart sales strategies improve margins without needing to sell more.
7. Control Discounting and Promotions
While promotions can drive traffic, they often hurt margins badly.
- Set limits on discount levels.
- Offer value-added bonuses (free gifts, upgrades) instead of price cuts.
Reminder: It's better to add perceived value than erode core pricing.
8. Manage Inventory and Avoid Overstocking
Overstock leads to markdowns, wastage, and squeezed margins.
- Forecast demand accurately.
- Use just-in-time inventory practices where possible.
- Regularly clear slow-moving stock at controlled margins.
9. Add Value with Premium Offerings
Introduce premium tiers, customisations, or service add-ons.
- Customers are willing to pay more for convenience, exclusivity, or personalisation.
- Premium upsells often carry higher margins than standard products.
10. Monitor and Act on Gross Margin Metrics Monthly
What gets measured gets improved.
Proactive monitoring keeps you responsive to cost changes or pricing opportunities.
Final Thoughts
Improving your gross margin isn't about major overhauls — it’s about smart, consistent tweaks to pricing, operations, and sales focus.
Start small:
- Adjust your pricing.
- Talk to your suppliers.
- Prioritise higher-margin products.
Gross margin improvements — even of just 1–2% — can dramatically boost your net profits over time.
Enhance your profitability even further with these expert resources:
- Strategies for Cost Reduction — Discover practical ways to cut costs and boost your margins.
- Building a Pricing Strategy That Maximises Profit — Learn how smart pricing directly impacts your gross margin.
- Understanding Gross Margin — Strengthen your fundamentals to support margin improvement.
