Archive for the ‘Profit Consideration’ Category
Three variables act to determine how much profit a product or service makes. These are the selling price itself, of course, the volume of sales achieved, and the underlying costs involved. These three factors are connected, since price levels directly affect sales volumes, generally the lower the price, the higher the volume. Secondly sales volumes affect costs, since the effects of economies of scale in purchasing and production are that costs per individual until fall as volumes increase. Finally cost levels are themselves a consideration, though as we have seen certainly not the only one, when setting sales prices.
The link between price levels and profits via sales volume is direct and immediate. As reduced price levels increase sales volumes, that volume increase must be large enough to compensate for the reduction in profit made from each individual unit sold. Conversely, as higher prices cause sales volumes to fall, it is possible that the additional profit per unit can actually generate a greater profit in overall terms. Unless yours is a business providing a commodity product a service that it is virtually impossible to differentiate from rivals offerings, do not compete on price alone. Find ways of enhancing your business