Business Advice - Discounting

Don’t Discount Your Way to Disaster

There is always the temptation to reduce prices when sales are a bit sluggish. It is one of the most over used marketing strategies around, and it can be a recipe for disaster. What many people don’t understand is the volume of sales that is required to recoup the discount given away.

Here are some statistics that may surprise you. If your present gross profit is 20% and you cut your prices by 10%, you will need to increase your sales by 100% just to break even on the discount. It is even worse the lower your gross margin. If we use a gross margin of 15%, you will need to increase your sales by a staggering 200% to break even.

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Business Coaching Sydney - Review Finance

Why You Should Review Your Financial Performance Regularly

In my travels I continually come across people who have little or no understanding of how their business is performing financially. There sole aim is to get paid and have money in the bank. They may (or may not) know the sales numbers but they don’t know their overall profitability or which of their customers are making (or losing) them money. They rely on their accountants to crunch the numbers but really the accountant is simply producing the BAS and doing the year-end tax return.

In my view every business should be producing a simple profit & loss each month to track how they are performing. It will highlight many areas of improvement that simply looking at your bank balance won’t do. For example, poor payers (you haven’t sold anything until it is paid for) work in progress (work not yet billed) or too much inventory (tying up your valuable cash). Expenses too high. It will also highlight if you are making money or not and (hopefully) motivate you to address these problems.

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