Q: My home-based design business sells store fixtures and related equipment to the retailers we work with. I try to operate on a 25% to 30% gross margin, but I don’t know if that’s appropriate. I always wonder how much more revenue we could get if we charged less?
A: You’re wondering about the wrong thing. You should be asking yourself how much less revenue you’d get if you charged more. Gross- and net-profit lines are far more important than sales. I’d greatly prefer to have $20,000 in gross profit on $50,000 in sales than to have the same gross profit on $100,000 in sales.
Why? Because I’d have fewer headaches, fewer shipments, fewer people, and on and on. If I were you, I’d look for ways to increase your margins, not reduce them. Maybe you can get better deals on the products. Maybe you can cut your shipping prices, but I wouldn’t do it unless you’re certain that you’ll get the additional sales—and that they’ll be worth it.
Photo by ba1969.