Low pricing businesses. Here is rule no 1 to stay profitable

We see many businesses trying to get lot of income in a highly competitive market by providing their services and product really cheap. While this is not a bad thing to be known as Low Price King if you did your maths on pricing and how to deliver in budget, many among you file losses due to avoidance of Rule No1 of this market. i.e. “Be Lean & Stick to the plan”

You could be able to provide products because you figured out the volume to sell, maintaining the operation etc. Like in case of WallMart or BigBazaar in India, they have a very great supply chain to make them be able to do it.

So it’s important for your business not to be slightly over budget in any field. The major problem comes in Operations. You need to be lean and should use perfect tools and checks (bound by time & budget) in place to do so.

Let me give you an example:

If a small shop will sell 500 pieces of AwesomeCheapThing at $1 eachday with a profit margin of just 5cents, he gets (5×500)/100 = $25 in profit eachday. Let’s see if one day its supply truck came late by just 1 hour which reduced its sell to mere 450 pieces for that day. He lost 5×50 = $2.5 on direct sell. But if we analyze what he actually lost, we got to know he pays his sells man for that 1 hour without selling anything + electricity cost etc + he spent little extra for inventory of that 50 pieces which made his loss to little more higher making that product price to sell at $1.5. But we guys have a tendency to neglect such minor stuffs and we just think that we lost only $2.5 for that day.

But the guy who is selling it at $10 and sell only 3 pieces may not have that much of trouble and all extras can be adjusted to his profit.

So if you guys operate in a low profit environment, being lean and on time makes sense else you might be doing just another business that’s losing the only issue here is that you don’t know where you lost it. You can to stick as some high strength glue to your operation plans. Losing is not a bad thing but knowing where exactly you lost is real crucial for you.