One of the quickest ways to change your profit is to change your prices.
The problem is that too many business owners don’t understand just how big an impact a small change can have…for good or bad.
I was at an event recently where the dangers of discounting were discussed – a discount can bring more sales, but in too many cases those sales don’t actually lead to profits. And most of the audience was genuinely amazed at the impact of a small price change.
For example, did you know that, if your gross margin is 30% and you reduce your price by 10%, you’d need to increase your sales by 50% to get the same profits? That’s a lot of extra sales.
As an accountant, I can be guilty of assuming everyone knows this stuff. But, most people don’t, so I thought I’d share our handy guide to the impact of price changes.
Discounting can be a useful strategy, as long as you understand the numbers. The good news is that a small price increase can lead to a large increase in profits.
I now have two tasks for you:
- Make sure you understand the impact of price changes
- Think about what knowledge you take for granted that you could share with your customers. We’ve had this table for years but it took the reaction of that audience to make me realise I need to share it more often
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