Category: Profitability

Think Twice Before Lowering Prices

Sometimes it feels easy to do what the customer asks and just cut a price a bit. So what if you shave a bit of profit off of your current business, you’re sure you will make it up in volume. Well, let’s see how much volume increase is needed to offset a cut in price starting with say a baseline of $15 with 50% margin…

Cost Cut Volume Increase Needed

…if you decrease the margin from 50% to 45%, you have to grow revenue by 22%. If you decrease by the margin from 50% to 40%, you have to grow revenue by 50%!! On the other hand, if you can manage to increase your pricing marginally, you can decrease revenue quite a bit and still maintain profitability.

Keep this in mind the next time someone says, “Hey, old buddy, old pal, can you hook me up with a little better price?”