So, What’s Wrong with Sales?

Here’s what you need to keep in mind:

• Start by looking not at your gross margins, but at your net profit before taxes on the equipment sales. In many cases, it will be less than ten percent. This means, that if your reduce prices by just five percent, you’ll need to double your sales of the item to break even. Is lowering prices by five percent likely to do that? Probably not.
• Ask yourself, what does having a sale say to your customers? If you can afford to offer “10 to 20 percent off everything in the store,” then your normal selling prices must be inflated. Customers would have to be crazy to buy from you at anything other than sale prices.

• Consider what will happen to sales before and after the “Sale.” You can expect them to be less than they would be had you not run the sale. Will what you sell “on sale” — at substantially lower margins — offset the loss of sales before and after?
• Remember, also, that it costs money to promote a sale. You’ll most likely need some form of promotional mailer. That means money for printing and postage. Also, if you send out this mailing by bulk mail, you’ll need to get it out far enough in advance that your competitors will find out and may schedule competing sales.

But wait! you say, Sears, K-Mart and JC Penney all have sales. Why shouldn’t I? Large retailers follow very detailed strategies when holding sales. They know how to make money doing so.

• Sales are frequently a means of clearing out seasonal merchandise — inventory chain stores can’t afford to hold on to for another year. Because these large chains carry a lot of seasonal merchandise, they budget for the fact that leftover odds and ends will need to be disposed of at sale prices. Dive stores are not like that.
• Chain stores often hold sales as a means of generating traffic. Sale prices frequently apply only to certain loss leaders. The store’s strategy is that the loss leader will bring in more traffic than the store normally gets — and that, while in the store, these non-typical customers will also buy enough other items at regular prices to more than make up the difference. In contrast, it’s tough for most dive stores to reach beyond their normal customer base.

Making sales work »

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