CoreTech News

Adjusting Your Profit Margin,

by on Jan.26, 2010, under General

Let’s say you have a product, widget or doo dad and let’s say your product sells for $100, and your cost of goods are $50 per unit, for a gross profit of $50. Let’s say further that your overhead is $5,000 per month. If you sell 100 units you’ll break even, right? Now imagine you cut your price 20%, from $100 to $80 via a coupon of sorts, leaving you with $30 of gross margin. You need to sell 66% more units just to break even. Let’s look at what happens when you raise your prices. Through good product positioning and excellent marketing you raise the price tag 20% to $120, your margins increase to $70, and now your breakeven drops to 71 units, and you make $2000

IF

¬†you sell the same number of them. But that’s a big if.

In general say you have a office, some staff, and a physical product – in other words, fixed overhead – lower prices can kill you – and you won’t even see it coming. Raising your prices can make you money! This only works, of course, when you can also increase your value proposition..

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