Pricing Discounts and How to Manage the Bottom Line

What does “Managing the Bottom-line” mean?

The term “bottom line” in business refers to the profitability of a business after revenues are recorded and expenses are subtracted. It is a company’s net earning value.  Successful businesses learn to invest resources in a strategy to find and keep customers. It continually develops products or services and markets those offerings to increase sales. Cost reduction strategies can further increase a business’s bottom line.

 

How do I manage the bottom line?

There are several strategies you can look at as a small business to manage and improve your bottom line. Here are a few things to look at implementing in your business:

• Expenses: Look at all of your expenses. Are there areas you can cut costs, such as shipping, rent, manufacturing or inventory that doesn’t move? Examining your expenses is the first step in improving your bottom line.
• Pricing: Is your pricing covering all direct and indirect expenses and still allowing a profit? If sales are good, but you aren’t seeing a profit, it may be time to increase pricing.
• Interest: If you have loans on your real estate, or if you are using credit cards to cover business expenses, you may want to look into a low-interest loan or a property refinance. Applying for an SBA loan could offer a lower interest rate while helping you grow.
• Marketing: Are you using effective marketing for the price you are paying? Review the demographics of who you are selling to and determine if you are targeting those groups appropriately.
• Networking: A vital part of managing the bottom line is networking. Making connections with customers, manufacturers, and suppliers can all work to your benefit. In today’s business world, networking can involve social media, emails and face-to-face meetings. Make sure you are spending enough time networking.
• Innovation: Keep an open mind toward innovation. Look for new opportunities to increase sales and decrease expenses.

 

What are pricing discounts?

Don’t you love a bargain? Everyone loves a deal, especially if they feel like they have paid less than the original cost of an item. Today’s small business customer is expecting a deal and they often chose their purchases based on the amount of money they will save.  Discount pricing can be used as both a promotional strategy for new products as well as means for increasing traffic and sales while moving inventory.

Creating successful pricing discounts can increase revenue. Here are a few strategies to consider:

• Holiday Discount: Offer a discount on certain items during specific times of the year. (Consider “Christmas in July” to clear out old inventory and prepare for new.) Other holidays, such as Halloween, Hanukah, Diwali or Ramadan could be an opportunity to offer a different discount and increase sales.
• Promotional Discount: Offer a limited time discount on a new item.
• Bulk Purchase Discount: Offer a tiered discount for items or the amount purchased.
• BOGO: Buy one get one free sales are proven to be a very popular discount among consumers. You might also consider BOGO-1/2-off (Buy one get one half off) for items that have a smaller profit margin.

 

How can offering pricing discounts help manage my bottom line?

It sounds counterproductive – to offer something cheaper that will (in the end) make you more profit – but pricing discounts, when done properly can improve your overall sales and even increase sales. It is also imperative to know what your costs are so you can “afford” to offer pricing discounts without losing money. There are a few things to keep in mind when offering a discount and still keep your business profitable:

• Make discounts temporary: You don’t want to de-value your own inventory or items. Showing them discounted for a limited time, will help maintain their perceived value to the consumer.
• Offer a limited supply: This can be done by turning off the discount after a certain number is sold, or by limiting the pricing discount to only a few, select items.
• Don’t discount…. but offer a “perk:” Sometimes it’s better for your bottom line to offer a “perk” instead of a discount. Some popular perks for today’s small businesses are:
  • Offer quicker shipping for purchases over a certain amount. (Free shipping is always a good way to get customers to purchase more items.)
  • Include something free – such as gift wrapping or a small gift.
  • Offer a rewards program for repeat customers.
  • Include fellow business discounts (see our business collaboration blog!)

 

Need more information or ideas? We can help you with strategies, tips and tricks to monitor and maintain your bottom-line.  Contact Paris SBDC today!

 

 

For additional resources on pricing discounts, or with help in how to manage your business’ bottom line, or other tips for growing your small business, please contact us at the Small Business Development Center – SBDC – serving Paris area:  Lamar, Hunt, Hopkins, Delta, and Red River counties.