September 13, 2019
pricing Part two
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Since I am a goof and hit publish instead of save I have a part two to Pricing.
After your costs are set you now need to think in terms of your maintain margin. this is the margin you will realize after the product is sold. so what elements do you need to consider?
Carrying charges, how long will the product be in your inventory preventing you from realizing the profit. It cost you money if you don't account for some portion it will be a hole at the end of the year.
Markdowns, these can be where you factor in your advertising and your cost to relieve your inventory at the end of seasons.
Damage returns, and defectives, these are probably the area where most companies find they did not properly account for the cost of handling the product when it is not satisfying the customer's need.
Now comes the art part of the formula. what is the profit you are planing? since no product is an island all your product must mesh into a profit number you must define the Lost Leaders, the high volume items and the big profit items to allow you to have a blended gross margin. Once you define the products then you must assign a price for sale to the items. Once you have that you must go back through to make sure your blended number is what you want and need.
So your Widget is priced at $5.99 and you are happy.
How do you know that all of the work you did is resulting in the 50% margin? You must check and check and check. Pricing is not only an ART it is also very Dynamic. So when you see the sales and you see the costs you must start over to the next item using all you learned to price Widget 2.
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