An Alternative to 1.4000 Price Conversion
Not that long ago, I was doing U.S. price conversions at 1.1000; in other words adding 10%. In the summer I might have been doing 1.2000 as the Canadian dollar started to show signs of its present decline. Let’s imagine that one of my regular customers — we’ll call him Carl — wanted to order a Bible that sells for $40 U.S.
The Bible wasn’t available domestically, so I ordered it through one of the three major Christian distributors and received a 40% discount. That means that without factoring in freight costs, I paid $24 U.S. or at 20%, $28.80, CDN. Again, using 20%, I priced the Bible at $50 CDN.
That means my gross profit margin on the Bible was $21.20 CDN.
Today, with some suppliers claiming they are being forced to change the conversion rate to 1.4000 or 40% — a notion we have challenged repeatedly on this blog — that means the same Bible is now $56 CDN.
But what if I decide to limit my profit to the $21.20 of the summer? At trade discount, my cost would still be $24 U.S. which now works out to $33.60; I add the $21.20 and come up with $54.80. I can round that to $54.99 and now the Bible is only $1 cheaper (plus I don’t actually know what the rate is going to be when I actually pay the invoice, not to mention the 2.75% the bank is going to charge for the conversion.)
Carl is probably not going to notice the $1 discount and I could use the extra $1 at a slow time of the year. However, it raises the point that list prices are suggested list prices. The present situation with the dollar allows some great margins to exist, and the potential profit has risen greatly over the past few months.
It also allows you to be flexible. I go back to Carl and I say, ‘Look, I know you really like this Bible and it’s not the first time you’ve bought one, so you’re giving these away, right? How would you like to get three of them at once and pay only $49.99 each?’
Now I’m back to the selling price from a year ago, but without using the calculator this time, I know that a healthy margin is there and I can do this and generate some badly needed sales at a slower time of year.
Carl gets a deal, a deal personalized for him. It’s not in a flyer, but it’s in a virtual ‘Carl catalogue’ which he probably likes better than a hundred titles he’s not interested in. And that’s the whole point: At higher list prices, a greater gross margin exists that you can play with.
But I can also work this both ways, I can go to my supplier and say, ‘Carl buys a lot of these, I know it’s only 4 Bibles;’ [I’ve decided to buy an extra keep one in stock if I can get a good deal] ‘but can you give me a few extra discount points?’
I know of two suppliers who will listen — although they might laugh because it’s only 4 copies in this example — and two suppliers who won’t budge. But to date there is no law against asking.