The Language of Business · Profit · Level 2

What a discount really costs

Take 10% off and it feels like you’ve given away 10%. You haven’t. You’ve given it away from what each sale leaves you, and that’s a much smaller number. This lesson works out how many more you’d need to sell to stand still, and how many you could lose if you put your prices up.

We compare gross profit: sales less the cost of what you sold. Rent and the other running costs stay the same whatever the price, so we leave them out.

Volume, Nina. Volume.Exit lesson

The numbers beside you

Sales = Price × QuantityWhat you charge for each item, times how many you sell.

Gross profit = Sales − Cost of goods soldWhat’s left of sales after the cost of what you sold.

Gross profit per item = Price − Cost per itemWhat each sale leaves you.

To stay level: Items needed = Gross profit to match ÷ New gross profit per itemHow many you need to sell to end up where you started.

What we’re counting

One month. Ignore GST/Sales Tax.

Nina’s normal month: 100 bouquets at $100, so $10,000 in sales. Each bouquet costs her $40 in flowers, greenery, paper and ribbon. That leaves $60 a bouquet, $6,000 gross profit.

A discount changes the price. It doesn’t change the cost. The roses cost the same whatever she charges.

Running costs (the shop, the van, the cool room) stay the same whatever the price, so they’re left out.

“Stay level” means the same $6,000 gross profit as a normal month.

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