Avoid Losing Money At Your Sale

by admin on May 17, 2010

Many businesses try to use common sense when they do their marketing, and it turns out that really works against them if their common sense is uninformed. Many business owners try 10% off sales, 15% off, 20% off.

I want you to quickly tell me the percent increase in sales that is required for you to make up the lost revenues required for you to take off 10%, 15% or 20% off the sale. You probably can’t. The answer usually shocks most people. We’ve given  you a little chart.

20% Sale    15% Sale    10% Sale
Regular Price    $20.00    $16.00    $17.00    $18.00
Cost    $12.00    $12.00    $12.00    $12.00
Profit Margin    40% or $8.00    $4.00    $5.00    $6.00
Units Sold    100    l200(increase of 100%)                   160(increase of 60%)                    133(increase of 33%)

Profit    $800.00    $800.00    $800.00    $800.00

In summary, a 10% Off Sale requires a 33% increase in sales, 15% Off Sale requires a 60% increase in sales, and a 20% Off Sale requires a 100% increase in sales.

You can plug in your own numbers for the sales required for any price reduction by simply following these examples.

We’re not saying that all discounts are bad. Sometimes they can be exactly what is needed to stimulate stagnant sales.

Immediately after a sale, you need to analyze your break-even point, as we did in the above numbers, and determine if you increased sales but decreased profits or if you really increased profits. Reducing profits might be an acceptable way to clear out dead stock that maybe won’t sell otherwise, but lowering prices as just a normal part of business is usually not advisable.

When a business relies on price reduction as a regular technique, this is generally a sign that a business has problems unrelated to pricing policies such as cash flow problems from dollars tied up in increased accounts receivable or excess inventory. You might have a problem with the salability of your product or service. Maybe expenses are too high. Maybe the owner is taking too much money out of the business.

Whatever the situation, regular price cutting is not the solution. It’s a symptom of the problem. It could be a strategic opportunity when you notice someone else offering repeated sales, to go in and offer greater value and take up their business.

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