It’s no secret that businesses are doing it tough in the NT. We have seen the inevitable closure of businesses, ranging from small coffee shops to large organisations that have been operating for 20+ years.
A common theme has dominated our meetings over the past few months, with an overwhelming number of clients expressing concern that they are being “undercut” and that they will need to “sharpen” their “pencil”. In some industries it is going to be necessary to reduce the margins, but what exactly is it costing you?
With discount pricing it’s important that you ask yourself the following fundamental question:
How much more do I need to sell to maintain profit dollars?
The answer to this is individual to each business and subject to their gross profit margin.
For example, if you have a 35% gross profit margin, and you are considering a 10% price decrease, you must have a 40% increase in sales to end up with the same total profit dollars.
Once you understand the potential effect on the business, you can make an educated decision on whether or not to discount a job or product.
Please email admin@wrenaccounting.com.au to get a copy of our discounting cost calculator.