“Killer Discounts!!!”

By: Alex Andreyev

Market

The politicians are arguing, the stock market is falling, and all chaos is breaking loose on all industries. If the big boys of Wall Street need a bailout, where does that leave us, the small business owners? As Sarah Palin mentioned (or maybe it was Tina Fey), If we are going to bail out Freddy and Fanny, when is someone going to bail out me, Joe the Plumber?

Well, regardless of who took the oval office and what will happen in the stock market, the wedding industry is in good shape. After conducting a survey, Knot.com, a world-leading destination for brides, reports that while 76% of brides are concerned with the poor economy, only 17% are definitely cutting back on their budget. Even those brides who are reducing their budget, will decrease honeymoon and entertainment spending first. The wedding industry is not completely recession proof, but it is still a thriving industry.

While the industry is vibrant, it is still as competitive as ever. In order to stay profitable, a few steps need to be taken. We must minimize our expenses, market efficiently, and promote more sales (expenses and marketing will be addressed in the following releases). Very often, in order to generate higher revenue, companies give outrageous discounts. While giving a discount might be a good way to increase sales, the outcome on our profit could be detrimental.

For example:

You sell about 10 Tulipia Bridal gowns per month, which generates $12,000 in sales. Your cost of goods/dresses sold (COGS) is 50% of your sales. Your fixed expenses (rent, insurance, etc.) are $1500 per month. Your variable expenses (salespeople, packaging, shipment), also know as Sales, General and Administrative expenses (SG&A), are about 20% of your sales. Now let's see how this all works financially.

Here you have your profit of $2,100 per month, or in other words, out of every dollar you earn you keep 17 ½ cents.

You are happy, but now your mortgage payments went up, cost of food is up and you want to go on vacation soon. So you decide to give a 10% discount. At the end of the month things look great, your sales are up 20%. Wonderful, but for some reason you still don’t have enough for your vacation. Here is why:

Here is why:   

So here you see that while your sales increased by $2,400, your profits fell by $720. Beyond this loss, you now work harder, sell more, but keep less then 10 cents on each sale.

Don’t let your vacation plans fade just yet. Tulipia Bridal gowns are all priced in order for you to make and protect your gross margins. As you can see when you give discounts, you are giving up margin, which is essential for protecting your business. We price all of our gowns in order for our retailers to receive at least 50% on wedding gowns, and 40% on evening gowns. Rather then giving away discounts, you can simply invest the same $1,440 in your marketing initiatives.
While investment in your marketing of $1,440 would still leave you with only $1,380 in profits, this investment should generate future increase in sales, while continual discounts will decrease your margins and profits with no additional benefit to your overall brand name. So keep it up, the best time to take a vacation is when very few people can, the beaches are less crowded that way.

Release 1 - Margins.pdf (1.49 mb)