Loose 100% to get 10% profit
Profit and Loss, Von Mises Institut…
Usually when we sell something and the item didn’t sell, we will try hard to sell it like bringing it out from the shelve or cut profit margin. When all the effort didn’t work we cut the profit till the lowest and hope for bargain hunters to come. Or trying the psychological marketing like buy one free one or buy this and get free that. But psychological marketing will not work on common items that people already know the current market price like for example a very well known brand we use everyday.
Very last choice is doing cheap sale. Better to get back some money before the items tend to be out of date and have no value if wait any longer especially electronics or digital items. For giant retailer that have big chain of shop nationwide, maybe old stock won’t be a big problem because they have good relationship with the supplier, got credit terms and big capital. But for small retailer or micro entrepreneur with very small capital, can’t afford not to sell when already buy products at wholesale price.
Well we might try this method. For example we buy let say a good quality speaker for a dealer price at $150. Because it’s a branded item so every seller sell at $185-$200 retail. As retailer all know that digital items like computer have very little margin and got to follow the market price with the worst part is the price also keep fluctuating like a commodity. Then after 3 month item didn’t sell. Then here come new version of the speaker with new function at $140 dealer price. In case of a micro entrepreneur, we can’t afford to buy the new items as the old items still not selling. Now the same brand but new updated products sell at lower price. So it’s time to cut the lost short.
As the technology is still 3 month old, we just sell it at the dealer price we bought it. So it is break even. But actually we are loosing with all the effort, rent and other expenses. Say at that price we manage to sell it at $145 to a happy buyer ($145 because the buyer still bargaining and we want to close the deal). Now technically we are -$5 loss. So with the money we can buy the new updated items at $140 dealer price. But after considering the past experience, how about using the $145 selling other items.
As we all retailer know, accessories, toys and stylish kid clothing have a very good margin. Some goes to 300%. After considering all the possibilities, we go to toys dealer and scouting for stunning or hot kid items in television. We had $145 in hand. Thinking in current situation kids are crazy let say about Transformers movies, Ben 10 and some anime action series. We Look at robot, thanks to Republic of China, we can see nice robot that can really transform at a very cheap price. Great news! you are the first customer and it’s just arrive. Buy 10 robots for $8.00 each but different model like cars, trucks and jet fighter – $80 cost. Got another $65. Ahh a nice new Ben10 flash watch for $3.50 each. Buy a dozen of it for $42. Got another $23. You take a 10 mini famous anime figurine for $1.50 each. Lastly got balance $8, not much you can buy and you keep it.
All this toys can easily sell at 100 to 200% margin. So at the end of the month you manage to sell:
6 Robot for $15.90 each = $95.40
7 Ben 10 Watch for $7.90 each = $55.3
5 figurine for $3.50 each = $17.5
So total sales for the month is $168.2 from your total capital of $137 from the $145 you get from selling the speaker. As a result with little bit determination from $145 you got $168.2, an extra 23.20. If you still keep the speaker at the first place maybe you can’t sold it or you sold it with much lower price.
Of course this is just a theory for a very small businesses…
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