{"id":56119,"date":"2018-09-24t06:00:39","date_gmt":"2018-09-24t10:00:39","guid":{"rendered":"https:\/\/48e130086c.nxcli.net\/?p=56119"},"modified":"2018-10-03t10:29:51","modified_gmt":"2018-10-03t14:29:51","slug":"case-study-when-discounts-dont-work","status":"publish","type":"post","link":"\/\/www.g005e.com\/2018\/09\/24\/case-study-when-discounts-dont-work\/","title":{"rendered":"when discounts don’t work"},"content":{"rendered":"
<\/a>don’t just report numbers; help clients see the big picture. by ed mendlowitz<\/i> my father\u2019s largest client was a luggage manufacturer with a national brand sold in specialty luggage stores, but not in department stores.<\/p>\n more:<\/strong> it\u2019s not always about the money<\/a> | perception becomes reality<\/a> | call me before you do anything<\/a> | the value in value consulting<\/a> | the making of a consultant<\/a> | learning to delegate: slow is faster<\/a> | a cpa looks back across the generations<\/a> he did this because he wanted to maintain the selling price, did not want discounting and felt his customer base would be more loyal if they did not compete against the larger stores\u2019 discounting policy. he was very successful and very profitable, but probably not as large as he could have been had he had the volume that department stores would have provided. he then handed me the last five years of financial statements my father had prepared for him and told me that i seemed smart, so i should go through them and tell him how much richer he would have been had he given 20 percent off! the 20 percent off didn\u2019t work.<\/p>\n at some point later on, i became concerned about how he could increase his market share and profitability, and prepared an analysis with the purpose of showing how much more he would make if he dropped his prices by various percentage points. the upshot of my work was that it was easier to make more money if he raised prices than if he lowered them.<\/p>\n my analysis included not only dollar sales but also units of his products sold and a \u201ccalculation\u201d of the physical units of added or lost sales he would need to increase his profit. one example of what the analysis showed was that a 40 percent gross margin and a 10 percent price increase would yield more profits as long as the units sold did not drop by more than 20 percent.<\/p>\n on the other hand, if he dropped his price by 10 percent, he would need an increase in units sold greater than 33 percent before he would start making more money. the client now had to determine if his customer base was so weak that he would lose as much as 20 percent of his unit volume because of the price increase. contrarily, would he gain more than a one-third increase in sales with the modest 10 percent price cut? neither seemed probable, so he continued his pricing policy.<\/p>\n note that there are other reasons to reduce prices such as<\/p>\n fyi, the dollar sales volume of the price changes were much less exaggerated, but did not tell the right story. an additional consideration was the need to focus on the production consequences.<\/p>\n the takeaway here is that cpas help clients see the big picture. measuring and evaluating what is being sold is one method. dollars are never the product.<\/p>\n","protected":false},"excerpt":{"rendered":"
\n<\/strong><\/p>\n
\ncall me before you do anything: the art of accounting<\/i><\/a><\/p>\n
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\nwhen my father died i took over as the luggage manufacturer\u2019s accountant, and my first day there we had lunch. he explained his pricing philosophy: he never gave discounts, but he did offer his customers a break while building up his sales in the slow months after christmas season by announcing a price increase for march 1, along with six-month dating on orders placed in january and february. he even agreed to hold the inventory and ship it when the store needed it. that way<\/p>\n\n
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