Increasing your profit starts with your pricing strategy. There is a strategy you should follow when pricing your products. Are you following a strategy that works for you and your goals? The secret to doing more with less in retail is simple: pricing for profit. Lets go over ways you can increase your income with the right pricing strategy.
If you aren’t marking your products up at least 2.5 to 3 times your cost and some products, even more, you don’t have a business. There is no way that your business model is sustainable over time. You can’t expect to pay yourself, your employees, to grow, or invest in your business if you don’t have the money to do it.
Let’s go into a little psychology for a second. Sometimes we think that we have to give so much value that we don’t ask for enough in return. We think we need to be the cheapest in order to make a sale. That is absolutely not the truth in retail. The truth in retail is you can sell your products when, in the customer’s mind, the value exceeds the pain of that price. Whenever value exceeds the price that’s the point in which someone buys. So if a customer looks at your buy-in group and says “There is no brand or value here it’s just a bunch of cheap stuff you can get on any bargain site”. You are training your customers to be bargain shoppers and not someone that you are building a relationship with and keeping over time. Knowing your cost and margins is crucial. How do you determine that if you’re new? Use this formula:
wholesale cost + your markup = retail cost
Then you can determine if the market will support that. Don’t get stuck on “Well I already marked it up 2.5 and that’s just enough”. You always want to go higher. If you see your product at other stores and it’s more, it’s okay to ask more.
The most successful owners will tell you it’s a hunt for the best deals and margins. When you do your shopping in LA, you are getting a discount. Shows like MAGIC have a big markup. If you’re brave enough, ask your vendors for a discount so you can get your prices down. What’s the worst they can say? No? So it’s silly for you not to ask for a discount! The most successful Boutiques get them and you can too.
Once you have added on your markup you will also include the cost of shipping. Add this for both your cost of having the items shipped to you and to your customers. If you are offering free shipping without this…shame on you;) Shipping is the #1 place that Boutiques lose money hand-over-fist. Look at the data. If shipping costs are eating you alive maybe free shipping isn’t the way to go for you. You might want to look at offering free shipping over a threshold or running a special.
I know what you are thinking … you don’t want to raise your prices and scare away your customers.
Pricing for profit does not have to be as drastic as you may think…
Take these two examples into consideration:
Example 1:
1000 items
Retail Price: $49.00
100% sell through = $49,000 income
Example 2: (adds $.95 to their retail price) or add $.99
1000 items
Retail Price $49.95
100% sell through = $49,950 income
That is a difference of almost $1000 in income!
Now imagine if you have 5,000 items
Example 1: $49.00×5000= $245,000
Example 2: $49.95×5000=$249,750
**The difference of $4,750**
The difference $.95 makes in your business can help pay your bills and have a stronger cash flow! (try this with $.99 too)
Pricing yourself for profit is the key to success in retail.
Test this out on your inventory to see what an additional $.25, or $.95 added on to your retail prices would mean to your business.
We have talked to many stores, customers, and retailers and have found that the majority of customers do not shy away from the price tags that include an extra $.25 or $.95 or $.99.
If you are providing quality items, excellent customer service, and education a customer will more than pay for an additional $.95 added to the price tags!
We hope you liked this article on How To Increase Your Income With the Right Pricing Strategy: Pricing For Profits. By shopping wholesale on Hubventory, members can take advantage of fair pricing and even member discounts on top brands!
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