Smith, Conley & Associates - Tips on Business Tax Planning, CPA Services, and Accounting Software!

Could You Make More Money With Fewer Customers?

The table indicates the increase in sales that is required to compensate for a price discounting policy. For example, if your gross margin is 30% and you reduce price by 10%, you need sales volume to increase by 50% to maintain your initial profit. Rarely has such a strategy worked in the past, and its unlikely that it will work in the future.

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If your present margin is ...

20%

25%

30%

35%

40%

45%

50%

55%

60%

To produce the same profit, you must increase your sales volume by...

And your reduce your price by . . .

2%

11%

9%

7%

6%

5%

5%

4%

4%

4%

4%

25%

19%

15%

13%

11%

10%

9%

8%

7%

6%

43%

32%

25%

21%

18%

15%

14%

12%

11%

8%

67%

47%

36%

30%

25%

22%

19%

17%

15%

10%

100%

67%

50%

40%

33%

29%

25%

22%

20%

12%

150%

92%

67%

52%

43%

36%

32%

28%

25%

14%

233%

127%

88%

67%

54%

45%

39%

34%

30%

16%

400%

178%

114%

84%

67%

55%

47%

41%

36%

18%

900%

257%

150%

106%

82%

67%

56%

49%

43%

20%

*

400%

200%

133%

100%

80%

67%

57%

50%

25%

*

*

500%

250%

167%

125%

100%

83%

71%

30%

*

*

*

600%

300%

200%

150%

120%

100%

On the other hand, the next table shows the amount by which your sales would have to decline following a price increase before your gross profit is reduced below its previous level. At a 30% margin and a 10% increase in price, you could sustain a 25% reduction in sales volume before your profit is reduced to the previous level . . . you would have to lose 1 out of every 4 customers!

If your present margin is ...

20%

25%

30%

35%

40%

45%

50%

55%

60%

To produce the same profit, you must decrease your sales volume by...

And your increase your price by . . .

2%

9%

7%

6%

5%

5%

4%

4%

4%

3%

4%

17%

14%

12%

10%

9%

8%

7%

7%

7%

6%

23%

19%

17%

15%

13%

12%

11%

10%

9%

8%

29%

24%

21%

19%

17%

15%

14%

13%

12%

10%

33%

29%

25%

22%

20%

18%

17%

15%

14%

12%

38%

32%

29%

26%

23%

21%

19%

18%

17%

14%

41%

36%

32%

29%

26%

24%

22%

20%

19%

16%

44%

39%

35%

31%

29%

26%

24%

23%

21%

18%

47%

42%

38%

34%

31%

29%

26%

25%

23%

20%

50%

44%

40%

36%

33%

31%

29%

27%

25%

25%

56%

50%

45%

42%

38%

36%

33%

31%

29%

30%

60%

55%

50%

46%

43%

40%

38%

35%

33%