Markup as a Factor in Increasing Sales

When you're thinking of price as a factor in your marketing efforts, how do you process it? As an arbitrary factor or as a factor that can be subjected to logical thinking? Even if you are manufacturing by yourself, it is impossible to determine eventual cost or price by yourself. The inputs that help you arrive at the goods you can offer for sale in a conducive atmosphere and attractive presentation will determine a whole lot about the cost.

Even if you are not a manufacturer, you do not control the manufacturer’s costs, transportation costs, and you can’t erase the cost of rent, staff, marketing, or even phone bills.

You have to realise that many other factors outside you control the eventual cost of your goods, but you can control your markup. 

Don't ruin your chances of generating higher sales volume by insisting on a hefty markup. What do I mean by markup? Your markup is your profit margin determined as a fraction of your cost. So if, for example, you sell children's shoes and: 

-you buy them from your wholesaler at three thousand naira each 

-you transport them (by the time you divide your transportation cost over each unit of shoes, you bought, your  transportation comes to about 100 naira per pair of shoes) 

- you add your standard running cost (yearly rent, cost of maintaining your store, staffing cost, etc.) all of them must be factored and divided on each pair of shoes. 

Let's assume all your standard cost comes to about another hundred naira per pair of shoes, then the actual cost of each pair of shoes is 320 naira. Of course, you would have included your marketing cost also. So if the cost of each pair of shoes is 3200 naira, then you multiply that by your predetermined markup to get your sales price. 

Again, what is markup? It is a percentage of your price that is equal to your profit. It is also called profit margin.

Some people insist on 100% markup on their goods while some decide to make do with a 50% markup while others have higher or even narrower markup or profit margin. Now, if you are selling fast moving consumer goods, you already know it has a slim margin so you can't have a high markup or else no one will buy from you. The competition will run you out of the market, but for luxury goods, some people can get away with 100% markup or even 150%. For example, a pair of shoes cost

30 thousand naira for you to stock it and offer it for sale. If you put 50% markup that means you are gaining 15 thousand naira on each pair of shoes so you know that's a pretty profit that can help you build your business as long as you are regularly selling. 

However, if you're not selling luxury goods that means you are looking at a segment of the market that may not have high spending power. You have to factor in how many times they buy shoes; if price is a significant consideration for them, etc. So it would be best if you thought about all of that before you arrive at a markup since it will significantly influence your sales volume. I'm aware that some people sell their goods with less than 10% markup as their standard. It's all good, really. 

You see, it is essential for you to know what you're selling, know your market deeply. Ask your suppliers questions, ask your buyers, ask your staff, listen and observe at all times. If you're not aware that you are selling at a 5% return on investment, please how will you know how much to reduce for a "customer daa daa ni?" How will you determine the amount to let go on promos or how much to expect as profit? How will you know how much to save as business savings per month? How will you know when you need to reduce your salary or forgo salaries (until sales improve) so you don't eat into your capital? Because, sometimes, the CEO's salary is just too much for the business to bear for long.

Wait. Have you arranged your small business to pay you a salary or are you still "eating" all of your profit?