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By treating a desired profit level as a fixed cost» you can 

 determine what level of sales you need to reach that profit goal. 

 Let's say your goal is $100 profit per week with a 40 percent mar- 

 gin. Then: 



fixed cost + desired profit 



cTo 



300 + 100 



:to 



400 

 740 



$1000 sales 



Breakeven or volume cost analysis is a simple way of under- 

 standing relationships of volume and prices. To the extent you 

 can accurately identify your costs, it is an excellent tool in 

 planning profit. 



So if you can sell say twice as much, your cost of selling 

 for each dol 1 ar of sales will be only about half as much. The re- 

 sult is that by reducing unit costs substantially you can signifi- 

 cantly increase the profit. Business experts call this "spreading 

 f i xed costs . " 



This holds true P^'^^''^'^^ ^"^^V with perishable commodities since 

 once purchased or grown they must be sold in a short period or you 

 will experience considerable loss. In this case, even the cost of 

 goods represents a fixed cost once they are purchased. The same 

 concept holds true for all merchandise except where the product is 

 not perishable. In this case, the cost of the product does not 

 represent a fixed cost to the market but a variable cost. 



Let's take an example. Suppose all costs of operating a road- 

 side market except for cost of goods sold run about $300 per week. 

 This includes wages and salary, supplies, utilities, taxes, insur- 

 ance, etc. Further, suppose our sales are $1000 for the week and 

 that cost of goods sold is $600. The result is $100 profit--not 

 bad. But if we could increase sales to $1500 with a cost of goods 

 of $1000, with fixed cost still at $300, then profits would be up 

 to $200, a very significant change. 



Of course, it may be necessary to lower prices on some items 

 to do this, but so long as you can boost sales by more than enough 

 to offset the price decrease you improve your profit picture. 



We're not suggesting lowering prices on 

 some items. The idea is to increase traffic 



all items--only on 

 in the store and con- 



sequently sales volume, 

 chandising in the store 

 you should aggressively 

 by increasing volume is 

 "in-market" promotions. 



This ties in with doing a good job mer- 

 When customers come in for the specials, 

 promote other items. Lowering unit costs 

 an effective tool, especially when used with 



Prices Must Be Advertised 



Using prices as a merchandising technique will be ineffective 

 if customers don't know about it. Consumers can only be motivated 



