Make More Money By Lowering Volume? Here's the Math

Phrases I hear most often when working with clients are “we get beat on price” or “we’ll lose our clients if we price any higher.” I suggest we test this theory with a 3% increase in prices. I don’t believe any qualified client is going to balk at a 3% price increase if, as sales people, we’re doing our jobs and, as operators, we are exceeding client expectations. But, for the sake of argument, let’s imagine that a caterer does lose 20% of its business by such a price increase. They’ll still make more money. Here’s the math:

 

When a caterer aims to make a 10% net profit on sales of $100K, ($100,000 x 10%) the caterer will earn $10,000.

 

When the same caterer loses 20% of its business by raising prices 3%, his sales will reduce to $80k. However ($80,000 x 13%) the net becomes $10,400. That’s an improvement of $400.

 

This sharp caterer has increased prices 3%, earned more, and added 20% more time for selling. Talk about exponential growth!

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Comments: 1
  • #1

    Garnet Packard (Sunday, 05 February 2017 18:39)


    Thanks very interesting blog!