Lets examine the impact of increasing your prices.
You may find the benefits of a price increase far outweigh the risks of losing customers. Lets start with a break even example: Sales of $ 1,000,000 (-) COGS $ 650,000 = Gross Margin of $ 350,000 Fixed expenses of $ 200,000 + Variable expenses $ 150,000 = Total expenses of $ 350,000 Therefore Net Profit /Loss = $ 0 Using the same example we now increase prices by 10%: Sales of $ 1,100,000 (-) COGS $ 650,000 = Gross Margin of $ 450,000 Fixed expenses of $ 200,000 + Variable expenses $ 150,000 = Total expenses of $ 350,000 Therefore Net Profit = $ 100,000 But how much business can we afford to lose before we are back at break even? Can you believe that a 10% price increase means you can do a third less sales and still be in the same place. Take a look at the calculation below. Sales of $ 733,333 (-) COGS $ 433,333 = Gross Margin of $ 300,000 Fixed expenses of $ 200,000 + Variable expenses $ 300,000 = Total expenses of $ 500,000 Therefore Net Profit /Loss = $ 0 In summary; if you increase your prices by 10% you can afford to lose up top 33% of your sales before you go backwards. Need help with your pricing strategy? Make sure you talk to the business growth specialists at Emanation Comments are closed.
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