Look At Average Single Item Sale

Here’s some of what retailer Art Freedman says in Making Money Is Not Illegal, Immoral or Fattening about pricing:
     “I’ll use my store’s experience as an example. Apply what I’m saying to your store’s situation. The average single item sale in my store is under $5.00. This is a very important number to understand because that’s where you can focus energies to be able to make a little bit more money in your business.
     “As the retail price of an item tracks down, say down below $5.00 in my store, it is far more important to be in stock than what the price is, within reason. As the retail price tracks up, pricing becomes more of an issue to the customer. For me, $5.00 is an important price threshold. As the retail price tracks down below $5.00, I am far more concerned about my margins than I am about gross profit dollars.
     “Now, you don’t need to be a CPA to realize you can not take margin to the bank. You take profit dollars if you sell the item. But over time, I sell hundreds of thousands of those lower-priced items. About 70% of the items I order for my store sell for retail at less than $10. We start to look at that and we formulate strategies based on where in our assortment of products we can go to make the money that we need in order to meet our final gross margin objective.
     “All this leads me to a question for you to answer: In your assortment of products that you carry in your business, where are your gross profit dollars coming from? Notice that my question is not about where your sales come from. I want you to think about where your gross profit dollars come from.”