The Profit Prophet

With times being so tough, most companies feel that the only way to attract new customers is to lower their pricing. While doing so in some cases will generate a short burst of activity and increased revenues, as a standard, long term course of action, it is not a wise thing to do . The first reason why it is not a good idea to lower your prices is that your associated costs have not been lowered, and in order to make the same amount of profit, you have to sell a higher percentage of product just to stay even. A case in point, if you lower your prices by 20%, you need to increase your sales volume by 25%. If you reduce your prices by 30%, then you need a correspondent increase in sales VOLUME of 42%; a 40% discount needs a 67% increase in sales. I think you see where this is going. Unless there is a huge amount of elasticity in your pricing (where volume increases appreciably more with a price reduction), that without corresponding lowering of your costs, a reduction in price is ...