Cost Effective?

Therefore, sales need to increase more than 10 percent or $3 million to make up the loss in margin and maintain the same total “profit” or funds available for fixed and overhead coverage. What’s the probability that sales will grow from $30 million to $33 million driven by a 3 percent reduction in selling price? Whenever you contemplate increasing sales and profitability by cutting prices of commodity products below the established market price, know how much sales increase you’ll need to realize just to match the margin you were realizing at higher prices.

Next week, in the second part of this three-part series, I’ll provide options on how to increase sales without cutting prices across all merchandise.

Jim Coogan is president of Catalog Marketing Economics, a Santa Fe, N.M.-based consulting firm focused on catalog circulation planning. You can reach him at (505) 986-9902 or jcoogan@earthlink.net.