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Marking
up for a profit |
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MARKING UP For A Profit
Our trophy store recently flushed out it’s showroom and re-priced
a new range (and some old) in readiness for GST. I was alarmed at
how many trophies had 1997 price tickets on them and when re-costed
at today’s mark up and suppliers prices went up by 10 to 20%.
Somebody coined the phrase “look after the pennies and the pounds
will look after themselves”. It is so easy to get an approximate
costing give or take a few cents but the problem is that the few cents
lost always come from the bottom line. It’s kinda hard to keep
up with pricing your showroom as it is such a big job and few have
a computerized system. An accountant once said to me that if it is
hard to re-cost such a big range each year just walk around the shop
and add 5% to everything each year to keep abreast of price changes.
Another point is that most people (including accountants) work out
a business costing structure by firstly taking into account the overhead
cost, the goods cost, wages, equipment costs and anything else related
to the cost of business. Then they work out what you can sell it for
and theirs your profit. A very rich business man once told me that
that costing principle was around the wrong way. His suggestion was
work out how much money you want to make as a profit taking into account
the tax you’ll have to pay, then add O/H, wages, components etc.
Add in a buffer for discounting and stuff ups and there’s your
sell price. Now if you can’t sell it for that price then don’t
sell it, find something else to sell that will achieve your required
profit.
O.K. I know this philosophy sounds like a perfect world solution to
making very good profit and you may be right. Maybe only the rich
and astute business entrepreneurs can use this discipline and us mere
mortals need to keep our prices at the bone so that those customers
who screw us each year keep coming back. A few years ago we decided
to let our local competition have all the customers who wanted there
order for nothing. We lost a few tight profit sales and gained more
time to concerntrate on the kinds of customers who don’t mind
paying the right price for a good service and we increased our company
profit at the same time.
I also asked the rich guy how do .I work out how much profit I want
to make (o.k, o.k. I’m not that bright alright). He said that’s
simple. Write down all the stuff you want from life. Include things
like, House, Yacht, Travel, Swimming Pool, Retirement, Health, Love
etc. Whatever you want. Then work out how much money you need for
them and when you want them (No you can’t have them all tomorrow).
Once you know how much money is required for this stuff add the cost
of Tax for that much (and throw in a reserve fund) divide it by the
years to weeks to hours and presto that’s your hourly profit
requirement rate. Well I know it’s not that simple but in principal
it’s a valuable way to look at the way you do your costing and
plan for the future instead of rolling with the punches.
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