Thinking about doing a little bit of discounting? Let's talk about that for a minute. If you want to discount any particular item, what are you trying to accomplish? This is not rhetoric. There truly needs to be a point to discounting, and before you presume that I want to bash the entire concept, let me say that I honestly have no problem with it.
But like everything else, there must be a reason. Which of your goals is discounting, say, sweaters moving you towards?Discounting is a brilliant scheme with which you seduce a customer (or potential customer) to try out one of your products or services knowing deep in your heart that when this customer bites the bait it will become abundantly clear that this product or service is worth the regular non-discounted price and will gleefully pay it in the future without question.
Charging $1.25 for laundered shirts everyday does not fit the bill for several reasons.
Let's say that your price for laundered shirts is $2.25. Let's assume that you do make an acceptable profit at this price point. You realize, perhaps by mining your POS' database, that only 1 customer in 10 uses your laundered shirt service. If you could get more customers to try your service, then maybe 3 out of 20 would use your shirt service, thereby increasing your profit margin. (Remember, you show a profit at $2.25 per shirt) Let's say that this increase in volume would somehow net you an additional $10,000 per year in net profit. What are you willing to do for ten grand? Actually, ten grand a year perpetually? Would you pay $5000 for that? Why not? In fact, it's worth far more than that. Jingle up $5000 and somehow end up forever taking in an extra $10,000 per year in profit. Sign me up.
It takes this kind of thought(careful thought)in order to decide how to invest $5000 so that by spending it, you end up far ahead.
One of your options may be to discount shirts for a short time. Perhaps a marketing scheme aimed squarely at those current customers that aren't aware of how great a professionally laundered and pressed shirt looks. Please note that I said "discount shirts for a short time". It is completely senseless to discount shirts (or any item that you work so hard to produce)long term. It is suicide, in my opinion.
So through careful database mining, you hope to get a bunch more customers trying out your shirt service, finding out that it is truly worth $2.25, and becoming customers for life at full price. At full price, of course, because your service and quality and convenience has clearly convinced this new customer that the discounted rate was exactly what it was supposed to be: a seductive enticement to try a new service that you offer. The seduction may work perfectly and hopefully what you have sold a product that really is clearly worth more than you charge. If you drop the ball on service and/or do a lousy job, your quest for more business will backfire. For this discussion, let's presume that you do a good job and give great service. Let's do the math.
- At $2.25, you make a 50 cent net profit per shirt.
- You do 3000 shirts per week.
- This means that you make a tidy $1500 per week profit on shirts alone.
- By careful use of a well designed cost calculating spreadsheet.
Time out. You can not do anything with regards to discounting if you don't know your cost per piece, your profit margin, the number of pieces that you process, how much you make on each one, what your fixed costs are, what your variable costs are and perhaps some other things. You have "no business" (hey, that's a pun) discounting if you don't know what you're doing now. None.
- By careful use of a well designed cost calculating spreadsheet you learn that your profit per shirt would increase to 57 cents per unit if you were doing 3800 shirts per week.
- That would increase your profit from $1500 per week (3000 times 50 cents) to $2166 (3800 shirts times 57 cents each). What are you willing to do for an additional $34,000 per year?
It's all about goals. I've said this over and over again. The goal here is to increase shirt profit by $34,000 per year. How are you going to accomplish that?
Remembering what your goal is (and you always have to remember that) discounting shirts forever is far beyond foolhardy. Perhaps your philosophy, some of you will argue, is that we discount the shirts to get the drycleaning. This is equally senseless. Your drycleaning must be able to stand on its own two feet so to speak. If you really think that your customers bring you their drycleaning simply because your shirts are cheap, you have a big problem. So big, in fact that you shouldn't be reading an article about discounting shirts, you should be reading an article on how to be a better drycleaning and a better business person. Really. If you really want to use an item as a loss-leader, use sweaters. It makes far more sense than shirts. Think about it.
So, back to your goal of increasing shirt laundry profits by $34,000 per year. The route to that is to increase shirts by 800 per week, while maintaining (or even improving) quality and service. Forfeiting all of your shirt laundry profits for a limited time may be a route to your ultimate goal. But not forever!
Hypothetically speaking now, you could go all out manically promoting shirts for 60 days. Window signs, brochures, website photos and descriptions for those that want to learn what shirt laundering is all about. You pull out all the stops. Maybe you offer shirts at an amazing discount of 5 or 6 shirts for $10. All of these schemes cost money. All of them, from the window sign to the LOSS of revenue and complete LOSS of shirt profits. But the difference between this and generally selling shirts below cost at all times is immense. The revenue enhancing power-play that I describe has a measurable goal and purpose. How well will it succeed? I don't know, but you will, because the only way that you can do it to monitor it very carefully. Otherwise it is a huge waste of time and money.
Discounting does have a place in this business. It has a purpose. That purpose is to increase profits not decrease them. Not ever.
"If you do what you've always done, you'll get what you always got."