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Write You - Competitive Pricing: Set The Right Price for Your Product or Service
Today skilled programmers, installers and operators in information technology routinely change jobs as skill sets ascend, peak and wane in the face of new capabilities in technology. These Techno Gypsies move from start-up, to existing enterprise to start-up, all as demand for their skills shifts and changes. Like technology, their skills are in a constant state of growth as they master the challenges of increasing processing speed, storage capacity and the demand for ever increasing information.As the builders of th
You decide to reduce your product X margin to 25% (retail of $15.00) to increase sales.
How many units of X will you have to sell to reach your 20% gain in daily net revenue($120).
You would have to sell 24 units of product X to increase your daily net revenue by 20%. That is a significant increase in your normal traffic (240%).
Ca
Growing up we where all told in order to make it in life that you must go out there and work hard for everything you want in life. The harder you work the more you will succeed. Is this really that true though anymore? Now a day people seem to work harder then ever before, and still come up empty handed.So is working harder really getting us to where we want to be at in life? More then likely the only place its getting you is laying on our bed with a bad back or a huge headache. The new age is upon us, and now people
The variance should not be significant even when a volume factor is introduced i.e. more traffic reduces the price to encourage even more traffic.
Aside: Wal Mart offers low prices but have higher margins than most of their competitors because they pay significantly less to purchase the identical product.
Margin
Margin is calculated as follows: Selling Price of Product subtract Cost of Product divided by the Selling Price.
Product X cost $10 and sells for $20 therefore the margin is 50%: $20-$10/$20.
Setting Margins
Merchants want and need to be competitive to survive and thrive: competition is a good thing. Unfortunately many merchants competite only on pricing; in the process destroy their own margins and damage the local market.
Merchants should be in the market to make money:as much as they can. Reducing your margin without a good reason is foolish with the exception of clearing out non-performing inventory (means you clear the item and not bring it back into inventory).
Margins should only be reduced to generate more revenue and profits for the merchant--typically because the volume of sales goes up significantly or because you want to drive your competitors out of the market.
The ambition to undercut your competitors is not as easy as it sounds and requires a large bankroll and patience--it is not for your typical merchant.
The logic about reducing price to increase traffic is reasonably sound but the following question should always be answered before attempting any price reduction: 'What increase in traffic (volume of sales) is required to not only offset your margin reduction but to increase overall revenue?'
The following example is useful to demonstrate the folly of margin reduction.
You sell product X with a 50% margin (retail of $20) which is normal for your area. At that margin you sell ten units of X everyday bringing you $100 (daily net revenue). You want to increase your daily revenue by 20% for product X.
You decide to reduce your product X margin to 25% (retail of $15.00) to increase sales.
How many units of X will you have to sell to reach your 20% gain in daily net revenue($120).
You would have to sell 24 units of product X to increase your daily net revenue by 20%. That is a significant increase in your normal traffic (240%).
Cal
I heard this story told about film director Cecil B. DeMille. I have no way of knowing if it's true, but the story beautifully captures the communications stall.Mr. DeMille spared no expense to part the Red Sea for his epic production of The Ten Commandments. Actors, engineers, horses, and assorted other animals were everywhere. The dust, heat, and noise were ferocious. Finally, everyone was ready to go and DeMille called out, "Roll the cameras" and "Action." After he finished shooting the scene, DeMille called to a
Product X cost $10 and sells for $20 therefore the margin is 50%: $20-$10/$20.
Setting Margins
Merchants want and need to be competitive to survive and thrive: competition is a good thing. Unfortunately many merchants competite only on pricing; in the process destroy their own margins and damage the local market.
Merchants should be in the market to make money:as much as they can. Reducing your margin without a good reason is foolish with the exception of clearing out non-performing inventory (means you clear the item and not bring it back into inventory).
Margins should only be reduced to generate more revenue and profits for the merchant--typically because the volume of sales goes up significantly or because you want to drive your competitors out of the market.
The ambition to undercut your competitors is not as easy as it sounds and requires a large bankroll and patience--it is not for your typical merchant.
The logic about reducing price to increase traffic is reasonably sound but the following question should always be answered before attempting any price reduction: 'What increase in traffic (volume of sales) is required to not only offset your margin reduction but to increase overall revenue?'
The following example is useful to demonstrate the folly of margin reduction.
You sell product X with a 50% margin (retail of $20) which is normal for your area. At that margin you sell ten units of X everyday bringing you $100 (daily net revenue). You want to increase your daily revenue by 20% for product X.
You decide to reduce your product X margin to 25% (retail of $15.00) to increase sales.
How many units of X will you have to sell to reach your 20% gain in daily net revenue($120).
You would have to sell 24 units of product X to increase your daily net revenue by 20%. That is a significant increase in your normal traffic (240%).
Ca
As much as billers don't want to think about it, software for medical billing is not perfect. There are going to be problems, sometimes lots of them. In the next series of articles, which will cover a number of critical areas of the DME software system, we will go over the most common problems that you will run into when operating your DME medical billing system. In this particular installment, we're going to just give a brief overview of the areas that will be covered in more detail.The first part of the system w
Margins should only be reduced to generate more revenue and profits for the merchant--typically because the volume of sales goes up significantly or because you want to drive your competitors out of the market.
The ambition to undercut your competitors is not as easy as it sounds and requires a large bankroll and patience--it is not for your typical merchant.
The logic about reducing price to increase traffic is reasonably sound but the following question should always be answered before attempting any price reduction: 'What increase in traffic (volume of sales) is required to not only offset your margin reduction but to increase overall revenue?'
The following example is useful to demonstrate the folly of margin reduction.
You sell product X with a 50% margin (retail of $20) which is normal for your area. At that margin you sell ten units of X everyday bringing you $100 (daily net revenue). You want to increase your daily revenue by 20% for product X.
You decide to reduce your product X margin to 25% (retail of $15.00) to increase sales.
How many units of X will you have to sell to reach your 20% gain in daily net revenue($120).
You would have to sell 24 units of product X to increase your daily net revenue by 20%. That is a significant increase in your normal traffic (240%).
Ca
A conference call is a call in which three or more parties interact simultaneously. Always a cost effective way to reduce travel expenses, conference call technology has advanced to provide a more interactive user experience. Today's conference calls not only include telephone communication, but also video and web communication. One of the most popular services allows clients who do not have video conferencing equipment to connect via the web, thereby participate using only their web browser.Conference calls can be u
The logic about reducing price to increase traffic is reasonably sound but the following question should always be answered before attempting any price reduction: 'What increase in traffic (volume of sales) is required to not only offset your margin reduction but to increase overall revenue?'
The following example is useful to demonstrate the folly of margin reduction.
You sell product X with a 50% margin (retail of $20) which is normal for your area. At that margin you sell ten units of X everyday bringing you $100 (daily net revenue). You want to increase your daily revenue by 20% for product X.
You decide to reduce your product X margin to 25% (retail of $15.00) to increase sales.
How many units of X will you have to sell to reach your 20% gain in daily net revenue($120).
You would have to sell 24 units of product X to increase your daily net revenue by 20%. That is a significant increase in your normal traffic (240%).
Ca
Make sure you have solid foundations.Have you ever seen a skyscraper being built?The first thing they do to build it is to dig down.It’s a little strange to see, but it makes sense if you think about it.By digging down and making sure all the foundations are in place, and making sure they are rock solid… the building can then reach up towards the sky.Without the rock solid foundations the building could topple and crash to the ground.Unfortunately that’s what happens to some busines
You decide to reduce your product X margin to 25% (retail of $15.00) to increase sales.
How many units of X will you have to sell to reach your 20% gain in daily net revenue($120).
You would have to sell 24 units of product X to increase your daily net revenue by 20%. That is a significant increase in your normal traffic (240%).
Calculation: 24 x $15.00 = $360 now subtract cost of the 24 units ($240) and you have the $120.
It is highly unlikely that your traffic will increase 240% just because of a price reduction:possible but not realistic. Now your customers think that $15.00 is the correct price and you may not be able to sell X at the original $20--potential for a daily net revenue decrease!
To get the same 20% increase in daily revenue while holding to your 50% margin, a simple customer reward program could be set up. While there is a cost to such a program it will be cheaper than losing $5.00 per sale of product x.
More effective price competition strategy.
The most effective thing a merchant can do is to find a better source for product X i.e. be like Wal Mart.
Price reduction, at the wholesale level, can happen because you purchase more units from your existing supplier and receive a purchase discount or when you find another supplier who sells the item for less.
Keep in mind the following. You do not have to decrease your price just because you buy it at a lower price. If your market allows for product X to be sold at $20 then you should continue to sell it at $20 even if your costs go down to $8 (vs the $10).
Best Advise
Strive to increase your margins not reduce them.
Sell your products at market value. If everyone else is charging $20 plus or minus $1 then you should be charging the same.
Compete not on price but on service. Start a customer satisfaction program or prize draws--both can bring in more traffic and increase your sales without significantly increasing your costs.
Alex G Landels
Copyright 2006
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