Understand Your Margins

Written by Sean McPheat | Linkedin thumb

12 October, 2007

Question Mark And ThinkerEveryone would love to sell at high volumes and high margins right?

Yeah right, like that’s gonna happen unless you have no competition at all that is!

But it’s really important that you get to understand the dynamics of selling at low and high margins and what they mean to your selling efforts.

Let’s look at an example:

Imagine that you are selling 100 widgets at £50 each and you make £30 on each widget sold (cost of goods is £20)

(Turnover is £5,000, Profit is £3,000, Costs are £2,000)

Now, if you raise your prices by just 10% to £55 that means that you only have to sell 86 units to make the same amount of profit as you did before.

(£3,000 profit divided by margin of £35 instead of £30)

Now, let’s assume that your clients screw you on price and you accept a 10% decrease in the price to £45. You now have to make an additional 20 sales (120 in total) to make the same profit margin.

(£3,000 profit divided by margin of £25 instead of £30)

Just think how long the additional 20 sales would take to close in terms of time and effort?

It’s just crazy!

You should be focussing on improving your selling skills to raise your prices and learning techniques to handle the dreaded “D” word i.e discount!

Do you understand the dynamics of your business margins?

If you don’t I would go out of your way to find out what concessions in price really mean not only to your bonus but also to the bottom line of your company too.

See you next time!

Sean Mc

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