Yesterday we talked about setting the price on your product. Today we talk about discounting the prices once you have set your price. Before setting your “sale” price we need to understand what affect to the bottom line the discount will have.
The first step is to know your true margin on the product. Without knowing this, you could be “Sale”-ing your way to bankruptcy. Let’s say your net profit margin is 20%. The question is how much more product would you have to sell in order to make up for the discount in net profits? You need to sell 100% more product because the 10% discount will come straight out of profit cutting your net margin down to10%.
Doulbling your sales is not enough, though because doubling the sales will only have you breaking even with the sale. This is like saying you have to work twice as hard for the same amount of pay.
On the other hand, if you raise your prices 10% what impact would it really have on your business? Well, your profit would go up to 30% on each unit of product. You would have to lose 1/3 of your customers at 30% margin to drop back to the same amount of profit you are currently making. This may even be highly advantageous to you if the bottom 10-20% of your clients are the trouble makers who pay slowly or constantly complain without reason.
Other resources to this issue are:
Managing your Cash Flow
Is Your Pricing Sound by Sandy Kemp
How Healthy is Your Business – Business Health Check
Cash Flow Pamphlet
14 Most Common Business Owner Frustrations & How to Fix Them.
8 Biggest Sales Mistakes Small Business’ Make and How to Fix Them
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Roger Hawk is the host of “Hawk’s Eye On Business: KBOI News Talk AM670” and has been coaching, teaching & consulting Businesses for over 18 years. He’s been seen in Who’s Who, Virginia Tech’s Scholar Library, Eagle informer and various social media forums. He serves on Eagle’s transportation committee, and has created numerous support tools to help Business Owners become financially successful.
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