Understanding basic business finance is essential for most business decisions.
Two sales professionals has got two different ideas how to reach success:
Seller One says: ”Let’s cut prices 10% and I guarantee we will sell 10% more!”
Seller Two says: “No, let us increase prices 10% instead, we will only sell 10% less!”
Who of the two is right? Or does it even matter what you decide to do? Ten percent higher price gives ten percent lower volume.Ten percent lower price gives ten percent higher volume – so what is the difference? It actually makes a huge difference. Not on sales – but on bottom-line.
Let us take an example:
Let’s say we sell 10 units every day, at the price of 10€. So our sales are 100€ per day. Now, let’s assume we buy the products at a price of 5€ per piece.
The situation today:
Volume: 10 units
Total sales: 100€
If we cut prices:
Volume in units: 11 units
Total Sales: 99 €
And if we increase prices:
Price: 11 €
Volume in units: 9 units
Total sales: 99 €