Increase Your Margins with Discounts
With the current economic climate, many businesses are struggling to maintain profit. It’s therefore tempting to discount prices to increase sales. Unfortunately this is a difficult path to profitability.
For example, if you have a 30% margin, a 15% discount halves your gross profit, and you must double the number of sales you make just to achieve the same gross profit prior to discounting. While this is not impossible to do, with added marketing costs, it is not easy.
A better way is to offer scope discounts rather than price ones. The way this works is to offer buyers who are looking to save a no-frills version of your service. So if you offered a turnkey service, you may give them the option of doing some of it themselves to save money. Or, you may offer a product fully loaded with features, and a basic model, with the option to upgrade from a menu of options. You can even make more profit with this strategy.
For example a top of the range car may be offered with every feature imaginable for $80,000. The manufacturer may also offer an entry level model at $50,000. The entry level model still offers the branding, the fancy hood ornament, the same quality engineering, the engine may even be the same, but the fully loaded model comes with a sports transmission, a pre-collision safety system, satellite navigation, rear view camera for parking, a moon-roof plus many other features.
The budget conscious may find the $30,000 gap far too much to bridge, but the entry level vehicle is affordable, and if they want the moon-roof, they can afford that for $1500 extra.
In each of these examples, the business has been able to preserve their profit margin and will be able to increase sales through the offer of a no-frills version, whilst still giving themselves opportunities for backend sales at even higher margins for the features that the customer initially declined as part of a higher price package.
How can you discount your scope while still preserving your margin?
All you need to do now is to Empower yourself and take action …
May Your Business Be – As You Plan It.
Dr Greg Chapman – The Profit Whisperer
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