When you first start out in a retail business it can be tempting to friends and family discounted prices of things. Fair enough, they’re family, right? About 25% discounts seems about right, right?
That’s ok, so long as you have more than 33.3% mark-up on your product.
Do the sums. You buy something for $100. You add 33.3% markup – you’re selling the item for $133.30. Your friend arrives and you want to give a good price, so you say, “I’ll give you 25% off the sticker price.” You take off the 25% discount = $ 33.32. Your friend pays $99.98 and goes away happy. Not only did you make no profit, but you actually sold the product at a loss.
So what about the shops that sell things – shoes for example – at 70% off the sticker. Easy. They simply add 233.33% (and probably more) because they don’t want to sell below cost. Of course the item could be a lost leader – the retailer knows they will lose money on this item, because they can sell you other items while you’re there. Be assured, no retailer staying in business is selling below cost.
The secret of good retailing is good buying. If you can buy low enough you can take off huge, crowd inspiring bargains, and still make a good margin. It is the ultimate fusion of art and science.
September 7th, 2008 |
