Know Your Numbers – Do you know how much it costs you to offer a discount?


Sales you need to generate if you offer a 10% discount

Sales $100,000.00 Gross Margin % of 50% (Gross Profit = $50,000)

Sales X Gross Margin = Gross Profit

If you offer your customers a 10% discount you’ll have to generate 25% more sales to make the same profit

Sales $125,000.00 X Gross Margin 40% = $50,000

_________________________________________

Sales you need to generate if you offer a 5% discount

Sales $100,000.00 Gross Margin % of 50% (Gross Profit = $50,000)

If you offer your customers a 5% discount you’ll have to generate 11.1% more sales to make the same profit

Sales $111,100 X Gross Margin 45% = $50,000

Tips
1. Monitor your Gross Margin %
2. Calculate the effect of discounts on your profits
3. Avoid offering discounts or take it into consideration when pricing your products
4. Don’t be fooled by the size of an order, you’re in business to make money
5. Analyse your financial statements regularly

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