Product price directly influences gross profit in your P&L, but just because you can change the price, should you? I have prepared two calculators, which count a change in sales if you cut or increase the price.

Calculate Discount

When competition is tough and sales slow down, there is an urge to run a sales activation by cutting down product price. It usually happens to deliver extra profit in the short term. This simple calculator shows how much do your sales need to improve in order to keep the same level of gross profit after cutting down the price.

 

My gross profit margin is
My discount is
To get the same gross profit, I need to increase sales by
%

Although it works for any product, let’s consider that you run a restaurant with 75% gross margin and decide to boost your sales with a 50% discount. Is it worth it? You will have to increase sales by 200% just to keep the gross profit in the same place. Is it even achievable? Serving additional 200% of sales will definitely add extra overheads in order to cope with demand and keep the same quality standards.

Calculate Price Increase

On the other hand, bumping up the price might be an option if your product has lower price sensitivity and customers are prepared to pay extra.

My gross profit margin is
I will increase my margin by
To get the same gross profit my sales can dip by
%

In this case, your sales or revenue can dip by 10% but you get to keep the same gross profit if you increase your gross margin of 45% by 5 percentage points. It’s the most effective way to increase profits.

Obviously, these calculations are not enough to run a sales activation campaign but it’s good to know how a simple formula can give clarity and assist in making a sound decision.

 

Post illustrated with scissors from The New Craftsmen