A little insight to retail math. The big box stores approach this a little differently than small sellers and I thought I'd share some of their strategy so that maybe you understand how they approach selling.
Let's say they buy 5,000 of an item at $10 each and sell the items at $30.
$50k invested with a retail return of $150k.They sell through the first half of the item and make $75k. They have made their money back plus a profit.Then they lower the price to $20 and sell through 50% of the stock they have left. So they sold another 1,250 units of the item and made another $25k.
The last 25% of the inventory they have left they just want gone at this point, so they clearance to $10 and make another $12,500. On to bigger and better things assuming it's not a replenish-able item that they will continue to sell. Total sales of $112,500.
Some people have a hard time grasping how some sellers can sell off the last few of a product at no profit when they look at the $10 cost per item. Bigger thinking says that the product is already paid for and the $10 was all profit.That's why you see AZ drop the price of something so low that you know they cannot be making money on it. I bought cases of Powerade this last summer for $4.04 a case. I know they can't pay for the product, the labor, the shipping, the boxes, tape, etc, to be profitable at that price. But it's not a matter of trying to be profitable on every single item, it's looking at the overall inventory ROI that it makes sense.
Now apply this theory to your entire inventory. At some point you are already profitable, so dumping the stragglers in your inventory, dropping the price to a losing price to get rid of an item and get money back are both acceptable ways of recouping money to reinvest back into more profitable inventory. We've all got those items, ones that we have been sitting on for months waiting for the price to recoup or for AZ to go OOS. Sometimes waiting it out pays off, sometimes it's just time to cut the price, dump the items and move onto something else.
So as we venture into Q4 and things are going to start moving, you might want to look at some older inventory, drop some prices and get rid of it so that you have time to take that money and put it into something better before the end of November. Don't focus on the $6 that you paid for the item, focus on the $5 you're going to get back to use right now for more inventory rather than trying to wait it out for what could still be months hoping to make a small profit on an item. You can do more with money in the hand right now versus waiting it out until Jan trying to get a few more dollars out of an item.
Some people have a hard time grasping how some sellers can sell off the last few of a product at no profit when they look at the $10 cost per item. Bigger thinking says that the product is already paid for and the $10 was all profit.That's why you see AZ drop the price of something so low that you know they cannot be making money on it. I bought cases of Powerade this last summer for $4.04 a case. I know they can't pay for the product, the labor, the shipping, the boxes, tape, etc, to be profitable at that price. But it's not a matter of trying to be profitable on every single item, it's looking at the overall inventory ROI that it makes sense.
Now apply this theory to your entire inventory. At some point you are already profitable, so dumping the stragglers in your inventory, dropping the price to a losing price to get rid of an item and get money back are both acceptable ways of recouping money to reinvest back into more profitable inventory. We've all got those items, ones that we have been sitting on for months waiting for the price to recoup or for AZ to go OOS. Sometimes waiting it out pays off, sometimes it's just time to cut the price, dump the items and move onto something else.
So as we venture into Q4 and things are going to start moving, you might want to look at some older inventory, drop some prices and get rid of it so that you have time to take that money and put it into something better before the end of November. Don't focus on the $6 that you paid for the item, focus on the $5 you're going to get back to use right now for more inventory rather than trying to wait it out for what could still be months hoping to make a small profit on an item. You can do more with money in the hand right now versus waiting it out until Jan trying to get a few more dollars out of an item.
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