Improving Your Gross Margin

Without a doubt the biggest single barrier preventing small business managers from making an acceptable profit is their refusal to charge a price that enables them to achieve it.

You are NOT in business to match the price of your competitors. Your are in business to service your customers.

Studies have shown that factors that influence people to deal with a particular business indicate that product and price are relevant only in 15% of cases.

The only situation where trying to hold or win market share on the basis of price discounting may work is where you have a definite cost advantage (either variable or fixed) over your competitors, and your product or service is one where customers are very price-sensitive.

To illustrate this:

If your gross margin is 30%
you reduce your price by 10%
To makle the same initial profit you would need to increase sales by 50%!!

Conversely

If your gross margin is 30%
If you were to increase price by 10%
Sales would have to drop 25% before your profit would drop below its initial level.

This means you would have to loose 1 out of every 4 customers!

Before you start thinking this doesn't apply to your business, there is in fact no business that doesn't have the potential to command a premium price for its products or services in such a way that the customer perceives added value.

Promote other features and benefits that you can offer your customers.

• Better quality
• Longer warranty
• Satisfaction guarantees
• Greater resale value

It may be that your competitors offer these things too, but unless they also emphasise this in their marketing, how will the customer know?

Your role as a marketer of your business is to create the perception of value and to then back this up with superb service.

Remember, price is only important when all other things are equal!