 Mathematical Tricks Lesson #1 - Pricing
Alright I don't post much as you can see. However, I want to share with you a little secret.
Now before I continue I want to make a few things clear.
1. I love math, and suck at writing "properly" so apologies upfront if my grammar is horrible.
2. This method may not apply to everyone as everyone does pricing differently.
3. This is a post to show people how to think outside the box.
Onto the so called trick.
I had a customer who was going to place an order for promotional hats. She wanted 100 caps and 100 visors. I went to my wholesalers, found the color she was looking for and got the price for 100 caps and 100 visors. For this example, let's say the price was 2.00 for 100. I add my market up, labor etc. So I informed her of the final price which she was happy with (put the deposit)
Well, I was about to place the order when I noticed that 100 hats is actually more expensive to order than 144 hats due to the case breakdown (1.39 at case level). So I ordered a full case. That is the trick. Sometimes, it is better to order a full case over what the customer wants.
Now, you can use this trick for business purposes one of two main ways. The first is an upsell. The second is increasing your own personal inventory for free.
The upsell:
Let's say I add $4.50 per hat for my work, other materials, etc. The final cost per hat is: $6.50, a grand total of $650. At a 144 hats, it would be $5.89 per hat, or a grand total of $848.
Since you are making a a flat rate on each hat, you are going to make more money. You can pitch several different ways, such as "Well, if you order 44 more I can offer those 44 at $4.50 each instead of $6.50" or you can say "Well, if you order 44 more, your overall price per unit will decrease $.70 and since you are giving these away, price per unit is very important"
Free Inventory:
Now if you don't want to upsell, or the customer refuses because that's all he/she needs, then I would still charge at the rate of which I get the 100 items. IE; the material to him still costs 2.00. However, I place the order for the case and receive 44 free hats. This is how you can build a decent inventory for free and thus have a nice profit when those colors come to sell again.
Now this method does not apply to people who buy in bulk or use a different pricing method.
The mathematic shortcut to find out the breaking points:
This section will be about how to figure out where the breaking points are. I have made it really simply to calculate the breaking point.
Here it goes:
Pb/(PriceH/PriceL) = Breaking Point
Pb = The amount at which the discount will happen.
PriceH = The price you would pay per unit if you would not increase your oder.
PriceL = The price you would pay per unit if you would increase your order.
Breaking Point = If you are ordering than this amount, than just go ahead and over the next level up.
So a quick example. Shirt A costs 5.00 if you buy between 12-143. If you buy 144+ it costs 4.00.
Pb / (PriceH / Price L) = Breaking Point
144/(5.00/4.00) = Breaking Point
144/(1.25) = Breaking Point
115.2 = Breaking Point
The mathematical proof:
115 Shirts at $5.00 = $575
116 Shirts at $5.00 = $580
144 Shirts at $4.00 = $576
Now just because you didn't hit the breaking point doesn't mean you shouldn't order the next price break. If you are only selling 100 shirts, and the shirt is a very popular blank, then by increasing the order to 144 you are only paying $1.72 a shirt to increase your revenue.
Just remember, to still charge the regular price that you would. You are using YOUR buying power to buy these shirts which means why should the client receive it?
I hope this all makes sense. If you have any questions please post and I will gladly answer them.
This concludes my first lesson of hopefully many more.
-Norbi | 
