Black Friday is Just around the corner. In just a few years South Africans have moved from being totally unaware of this crazy American phenomenon to absolutle nutballs for it.
No wonder then that I’ve this week found myself deep in discussion with several business owners about whether they too should be deep discounting to get a piece of the action. And it’s a real dilemma. Get in on the action, but at very low margins, or skip it and potentially miss a good chunk of the holiday shop.
To be honest I can’t answer this definitively one way of another. Black Friday brings some benefits after all. If you need traffic to your store, or are looking to attract buyers who almost never shop with you then it just might be the answer to your prayers. Especially if your goal is to get them there and then get them buying products or services that are not on promotion.
But it does come at a cost. And one you need to keep top of mind when discounting at any time of the year.
Let me show you by looking at this simple example:
Product Price: R100
Production costs: R50
Gross Profit: R50 or 50%
Product Price: R80
Product costs: R50
Gross Profit: R30 or 37,5%
Product Price: R120
Product Costs: R50
Gross Profit: R80 or 58,3%
Price cuts have a disproportionate affect on your overall business profitability. Of course sometimes you choose to discount in order to get the sale. But it begs the question of whether that’s a quality sale that you can afford or not. Is this the customer you want to attract? Are you teaching people to expect lower prices? Or could you perhaps offer better value without adjusting your price.
Want to talk pricing and how to build your overall business profitablity? Contact us at firstname.lastname@example.org