~You won’t make it up in volume~

If you cut prices by 10%, most dealers think you only need to increase sales by 10% to make up the difference.

In his book, How To Sell At Prices Higher Than Your Competitors, Larry Steinmetz mathematically demonstrates that if you cut your prices by 10% (on a 35% gross margin), you’ll have to double your sales to make the same net.

Conversely, if you raise your price by 10% (on a 35% gross margin), you can lose approximately one-third of your customers and still make the same net. (You can check these figures out for yourself in Steinmetz’s book.  I highly recommend obtaining a copy and reading it.)

So, what does this mean for floor dealers?

Most importantly, trying to make up for a price cut by increasing volume is a suicide mission.  And I mean that literally.  In his book, Steinmetz shows that the overwhelming number of businesses which go bankrupt do so during a period of increasing gross sales and decreasing gross margins.

Walmart can get away with selling on cheap price. They are engineered to move a massive amount of product through their checkout lines fast.  (Yet even they face challenges from competitors who have figured out how to provide product lines as cheaply or cheaper.)

Flooring dealers are not set up to do the same thing as Walmart.  Floors are a big-ticket item with a time-intensive sales, ordering, and installation process.  Plus the installation is an art that requires a lot of skill and specialized training.  None of this is conducive to the kind of volume required to make up for the cheap price.

In the next installment, we’ll discuss why a cheap price is an unsustainable market advantage.

 

To Tons Of Customers!
Jim Augustus Armstrong is The “Coach”

Jim Augustus Armstrong is the President of Flooring Success Systems, a program that equips dealers to double their profits, cut their work hours in half and beat the boxes! Many dealers have totally transformed their businesses and their lives for the better after joining Flooring Success Systems.
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