I was given £40’s worth of book vouchers as a Christmas present at Christmas to use at “Waterstones”.
As a big reader of books this is a great present except I am more likely to buy a Kindle product now days rather than anything else.
Anyway while in our local town I decided to have a look around the shop and see if I could see anything.
The only thing that caught my eye (Small shop small business section) was Alan Sugars Autobiography
I actually love reading books about other entrepreneurs and their stories because you can find some interesting lessons about business in them.
One of Lord Sugar’s favourite sayings was…
“Stack them hi sell them cheap”
But people misinterpret this as meaning low price and low profit.
That’s the conundrum.
Actually Lord Sugar (known then as just Alan) didn’t mean exactly that.
He actually realised early on that he could make more money when he sold higher price items for £199 or more.
A favourite seemed to be around the £399 mark.
Not exactly sell them cheap.
He actually meant cheaper than the competition.
He also used a profit formula …
• Sale Price
• – Vat (15% at the time)
• 25% for distributor
• 30% for him
What was left was his manufacturing target.
Again not exactly small margins which the “Stack them hi sell them cheap” saying would imply.
He was able to do this by actually setting the cost price he needed to achieve and sticking to it.
What he really did was move into markets where prices were over inflated (or by his assessment were) and undercut the competition by cutting costs.
As long as he could make his 30% he was happy.
Now you could argue when he moved into some markets he probably could have made more money by charging more and still selling a lot of products.
And although you can’t argue with what he achieved with Amstrad (in its prime worth 1.2 billion) you have to wonder if he could have done better.
The price you sell at is important and too many times I see people just making it up without testing to see what will happen if you increase it.
A price hike could lose you customers but not enough to lose you money.
Average order value is an important figure and one you should be trying to improve all the time.
Biz Life Line