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How to stay profitable in a consumer crisis Posted on March 18, 2020

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At the time of writing this, businesses face consumer nervousness. Consumer spending is an essential engine of the Australian economy. We need Australians to spend their money, and you need them to spend it with you. Pricing can be one strategy to entice consumer spending and therefore maintain profitability in difficult times. Before you slash prices, crunch the numbers.

Watch your margins

Its important to know how low you can go. First calculate your gross margin by working out your revenue minus cost of goods sold (COGS).

Know your gross profit and your net profit minus cost of goods sold (COGS) and overheads. If your calculations leave you with a profit margin in your forecast, you’re on the right track. If they don’t, reach out for help early in order to troubleshoot. This is not the time for guesswork.

Know your customer acquisition cost.

This is the cost spent on acquiring new customers (marketing, quotations, networking, etc.) divided by the net profit you’ve made per new customer. The result may well lead you to review your marketing campaign. Consider what is working, throw out what’s not and use this time to think creatively and innovate.

Review your pricing strategy

Discounting can be a good way to reward your loyal customers, attract new customers and move your stock in a short period of time. Place conditions on a discount such as a time limit or bundle deal such as x% off your second item. Be careful not to undercut your value.

Rewarding payment on time will also help to incentivise your customers to pay on time, i.e. X% off for payment before a certain date. This can be useful for cashflow purposes.

Our simple message at this time is don’t be left alone. Seek help if you’re concerned.

Plan, review, execute, repeat.

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