So, we’ve looked at the issue of matching supply and demand.
Many entrepreneurs undeservedly pay little attention to this issue and completely in vain.
Why? Step 5. – Pricing
There are many reasons for this, and perhaps the most important one is that with the right pricing you can easily increase your profits without spending a penny.
How should pricing policy be applied to increase profits?
Basically, there are two options here.
- Correct formation of the price of goods based on the elasticity of demand for price
- Correct formation for each product category (based on the results of ABC analysis)
Let’s start with the first strategy.
First, briefly and in plain language, what is price elasticity of demand? Price elasticity of demand is an indicator of how much the demand for a product or service will change with a change in the price per unit of measurement. To put it even more simply, the demand for a product or service will change if we increase or decrease the price.
It often happens like this
You buy a T-shirt from a supplier for 500 rubles. You make a standard markup of 70% and get a selling price of 850 rubles. Then, you put it up for sale and people start buying it. Let’s say 30 of these T-shirts were bought from you in a month. As a result, you earned as a profit: (850 – 500) * 30 = 350 * 30 = 10,500 rubles. Multiply by 12 months and you get 126,000 rubles.
This is the profit you made from selling this T-shirt in a year.
Now let’s work a little with pricing.
The thing is that it doesn’t matter to a person whether to pay 850 rubles for a T-shirt or, say, 897. The amount of 47 rubles seems insignificant in the client’s head and he won’t pay attention to it. Of course, if you immediately set the right higher price and don’t increase it constantly. Thus, demand most likely won’t fall at all. Or, in other words, this product has inelastic demand – with an increase in price, the sales volume does not change.
Here’s what it turns out to be in numbers: (897 – 500) * 30 = 470 * 30 = 14,100 rubles. Total for 12 months – 169,200 rubles.
By simple mathematical south africa telegram data calculations we find that in the second case the profit was 34% higher than in the first. In other words, without changing anything in particular and without making any effort you earned 43,200 rubles more.
And that’s not the whole effect!
The thing is that, as a rule, the initial markup is able to cover all current expenses and provide some amount of profit. So, it turns out that everything “on top” is your net profit as an owner.
But that’s not all!
As a rule, the store’s assortment does not consist of one T-shirt, but at least 10. Or 20. Or 100 – here you decide for yourself. So, if you multiply 43,200 by 10, you will get a net profit of about 432,000 rubles.
Now imagine this situation. At the end of the year, you suddenly find yourself with an extra 432,000 rubles in your pocket. Will you find a way to use them?
And the second strategy.
When a store makes a markup on an incoming product, as a rule, the same coefficient is applied to all categories. Meanwhile, the speed of product sales is always different. Some sell faster, and some slower. Accordingly, the markup should be different. A product category whose sales speed is lower than others should have a higher markup so that it remains profitable.
If we apply the ABC analysis we have already discussed, then the markup for category “A” should not be very high, since people come to you mainly for it. why? the reason is the same The markup for category “B” should be higher, since this product sells more slowly. And finally, the markup for category “C” china leads should be the highest, since this product sells the slowest.
Start applying these techniques to yourself and you will be surprised at how much your profit will grow in the first month.