Early on, someone told me you can tell the strength of a store by how close to Suggested Retail Price they charge.
Why do I try to charge S.R.P as often as I can? Is it to survive? Or is it to get richer?
No, the real answer is -- so I can have a fully stocked store. Not just the obvious stuff, but the next tier down, as well as the unusual and the unexpected. So that I don't constantly have to scramble to get enough material, or pay my bills, and so I can experiment on untested or new product, or bring in a whole new product line.
That's really the real reason. To have a store full of material. S.R.P is me trying to do a good job.
Try to explain that to a newbie to business. They've been told from the moment they first think about retail that "the cheaper you are, the more you'll sell."
First of all, that is often not even true. Product tends to have its own demand momentum. If it had high demand, you can sell it at a higher margin. If it has low demand, selling it at a cheaper margin won't usually push the noodle all that much.
But selling more doesn't even matter, if you aren't making sufficient margin. At least in the cost effective sense. If you sell 80% more selling for half the normal price, you still don't make what you would've made selling for 80% less at normal price. In fact, you probably lost money. At half the margin, you need to double your sales, minimum.
That's IF you are selling at a very nice 50% margin. If you sell for less than that, -- and for most product most of the time, you do sell for less than that -- then even selling double won't make up for the loss. (If you get large margins -- 50% or more, I guarantee it won't be long before someone comes along to undercut you. Every time.)
If I sell you a 1.00 item that I bought for .60, at 20% off -- that is half my profit margin. For you, the significant number is 20%. For me, the significant number is 50%.
But even if you succeed at selling more material -- you still have to replace it. In fact, you have to replace twice as much material. Your cost of goods in effect is twice as much, so you have to sell more of it faster.
It's a downhill slide, I tell you.
You have no margin for error. If something stops selling, you're probably going to lose money. Selling half the product at full price to break even is a much more comfortable place to be than have to sell 80% of the product before you break even.
It's hell on the cash flow -- being positive sooner is a great benefit to a business.
Sometimes you have no choice. But whenever you can charge the S.R.P, you should try to do it.
Not because I'm greedy. But because by buying at S.R.P I can stay in business, buy more material, buy material that has slightly less demand or sells slightly slower, have sufficient stock in place, and so on.
S.R.P. makes me a better store, which helps me to sell for full price, which helps me to be a better store, which helps me to sell for full price....
6 days ago