How Much Can You Afford To Cut Your Price During Sales?

I came across an interesting table recently which which I had prepared in an attempt to show the effect a price decrease had on profit.

This was prepared well before anybody had computers and I am always amazed at what good work we did back then (boast,boast).

The only problem is that we have to do so much reading of old material to find the good stuff. I have not seen this anywhere on the net and I know it will be of interest to any small business owner who has a retail operation.

With the retail establishments total reliance on Sales as a tool for enticing customers it seems that some establishments never sell for retail price anymore.

I have said it elsewhere, but the shopper who pays retail for carpets or rugs has to be a real dope!. Same can be said for jewelry which some retailers are always offering at 50% off retail. can you imagine what their mark-up must be? They must take us for gullible fools. Someone must be taken in or the ads would be withdrawn.

So to the retailer who is wondering what the discount will do to his profit I provide the following information:

Gross Profit % =	30%	35%	40%	45%	50%	55%	60%
If you cut your price by:	Your Gross Profit will be reduced by
10%	33%	28%	25%	23%	20%	18%	17%
20%	66%	57%	50%	44%	40%	36%	33%
25%	83%	71%	62%	55%	50%	43%	41%
30%	100%	86%	75%	66%	60%	54%	50%
35%	8%	100%	88%	77%	70%	63%	58%
40%	14%	7%	100%	88%	80%	72%	66%
45%	21%	14%	8%	100%	90%	91%	75%
50%	29%	21%	17%	9%	100%	11%	83%

Figures to the nearest whole figure
Red figures are % of Purchase Price lost

The table shows that if a trader is receiving the normal markup of 30% for most small retail traders then 10% cut in price will reduce her gross profit by 33%; a 25% cut will reduce his gross profit by a massive 83%. Frightening isn't it?

Some industries are able to trade at 60% and higher but even here a trader would have to be worried at the 83% reduction in gross profit. A trader would have to be certain of receiving some other advantages before she had many 50% off Sales.

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