Feature
Avoid These Retail Pricing
Mistakes
By Jeff Haefner
Did you know that if you lower your prices by 10%, you need to sell 33% more to break even?
And if you discount 20%, you have to sell twice as many items to break even!
Are you making this mistake and losing money?
All too often, specialty retailers think they need to compete with the mass merchants and offer discounted pricing. They don't realize that this is usually counter productive!
If you're going to lower your prices by 10%, you better be absolutely sure that you sell 33% more as a result!
Consider The Real Cost of a Discount (At 40% Margin)
5% Discount - Sell 14% More
10% Discount - Sell 33% More
20% Discount - Sell 100% More
30% Discount - Sell 4 Times As Many
40% Discount - YOU NEVER BREAK EVEN
Surprised? Don't worry. Lots of retailers make this mistake. But thousands of other retailers are making a lot of money! How?
They are adjusting their prices. For example, here's a pricing scheme that I've seen various retailers use:
They will start with manufacturer’s suggested retail price, and anything up to 50 cents (retail) is doubled; if the item is priced between 50 cents and $1.00, it’s multiplied by .75 and the result is added to the starting amount; anything between $1.00 and $1.50 has 50% added to it; and so on.
Here's a summary of the price adjustments:
|
Price Range
|
Percent Added to List
|
.01 to
.49
.50 to .99
$1.00 to $1.49
$1.50 to $1.99
$2.00 to $9.99
$9.99 and up
|
Add 100%
Add 75%
Add 50%
Add 25%
Add 15%
Add 3%
|
I see lots of "small engine parts" stores using price tables like this. They are raising their prices and they are running very successful businesses. But more than just "small engine parts" stores can benefit from this technique. I've seen lots of other successful retailers use similar techniques.
The key is to price all items for maximum profit. Your customers aren't going to price shop for an item that's $1.12. In fact, 99.9% of your customers will still buy that item for $1.49.
The truth is... most retailers should be raising their prices instead of lowering them. Why should you bump your prices?
First of all, your store is probably the most convenient for a good majority of your customers.
Second, this price increase is NOT significant enough for your customers to go somewhere else and affect your bottom line.
Third, if you offer great service and answer lots of questions, then you'll have loyal customers that are willing to pay a little extra.
Adjusting prices might seem like a time consuming task but POS software can make it a lot easier. Many POS systems let you instantly adjust prices based on "price range" or "category"! These are handy features that can save a lot of time and give you a nice boost in profits.
I'll Say It Again! Lowering all your prices across the board would probably be a catastrophe, while raising them a small amount as I have suggested, will increase your bottom line!
A million dollar store with just a 3% increase in margins shows $30,000 extra in your checking account at the end of the year!
