Staying Profitable in a Tough Economy - A Quick Example
Some pricing strategies to think about as you're trying to stay profitable when times are tough... This may be obvious to some of you, but when you look at raw pricing strategy formulas, it may stop you from making quick (but costly) decisions:
This simple example assumes you need to maintain a 25% gross profit, or gross margin, and shows what happens (or doesn't) if you lower or raise prices.
If you lower prices by:
2% - You must increase sales by 8.7%
5% - You must increase sales by 25.0%
10% - You must increase sales by 66.7%
20% - You must increase sales by a whopping 400.0%!!
If you raise prices by:
2% - You get the same profit on a sales volume of 92.5%
5% - You get the same profit on a sales volume of 83.3%
10% - You get the same profit on a sales volume of 74.4%
20% - You get the same profit on a sales volume of 55.5%
Makes you sit up and take notice, doesn't it?