[John Kelly]

The typical reaction to poor trading conditions or poor performance is to reduce prices to try to increase sales volume. You then have to put in more work for less return.
A company has a gross profit margin of 25% and they decide to cut prices by 10% they would need to generate 67% more sales to compensate for the price reduction.
On the other hand, the same company could afford to lose 29% of their existing volume of business, if they increase their prices by 10%
This is why businesses get sucked into a spiral of decline and failure during difficult times. They cut prices believing that they have to maintain turnover. As we can see this has a huge effect on gross profit-sales have to go up to compensate.
Often the most difficult thing to do is increase sales. And when the necessary increase in sales does not happen, many businesses react by reducing prices yet again-another loop in the spiral to failure.

I have a chart with the relative figures to compare, if anyone would like a copy - drop me an email.

[HQCS (John Kastrian)]

An excellent post John,we would never see it like that unless it was made obvious to us.
In this area business has dropped off for all trades,and many are beginning to feel the pinch.
We have raised our prices steadily since forming about 3 years ago,and we are now working less for more,so your theory is spot on.
John.

[Liahona]

Since I have been making posts on here I have always said on the whole we should raise our prices, I raise mine constantly and you know what I charge as it is., I work maybe one or two days a week for what most cleaners charge for a weeks work, this way I am never slow and if I am it doesnt matter. Best, Dave.

[Mike Halliday]

I take £100 my gross profit is 25% =£25

I reduce my price by 10% so my taking are £90 so 25% of this is £22.50p by reducing my price by 10% I lose £2.50.

why do I have to do 67% more work to make this up?

my maths isn't that good so i might be wrong but it doesnt look right to me

Mike

[darrenlee]

 could it be more if you are selling a item say suite or carpet, then margin     figures maybe more like what john as said.
as you would have to sell more products (goods) to make your margin.

darren

[John Kelly]

It is complicated. What we are talking about is profit margins not raw figures. Took me quite a while to get my head round it too.

An example: you turn over 100,000 and make 25% gross profit. That means your costs are 75,000, and you make 25,000 gross profit.
Right, now you do the same amount of work but you reduce your price by 10%.
You have now turned over 90,000. however your costs are still 75,000 you have now only made 15,000 gross profit. If you increase this by 10% you only get 16,500. So you see a 10% price decrease isn't a 10% decrease in profit it is much more substantial.
Any clearer?

[Mark Roberts]

Yep it works out. Gross profit = profit before taking off fixed costs.

http://www.smallbusinessadvice.org.uk/busplan/myob05.asp

Just raise your prices every year 

[darrenlee]

hi john

so this could work other way, put prices up just by small amount say 10%, and on a large turn/over you would have a good gross profit % increase
john could you email me a copy



cheers darren

[Mike Halliday]

John I did actually know this

I was just calling your bluff to see if you did

although I don't think it as black & white as that.

what if i had a sale and offered a 10% discount and it encouraged 20% more sales,

plus not all expenses are fixed

Mike

[Mike Halliday]

I like to increase profits  another way , if I can walk out of every house with £10 more than I quoted or expected I would earn an extra £10660 a year pure profit :)if I give every customer a £10 discount or clean a carpet free which would cost £10 then i would be £10660 poorer

Mike

[John Kelly]

Mike
Theres nothing wrong with offering special period reductions or offers. We all do this at times and it can bring in a bit extra work. I am doing this for the benefit of those people who maybe get a bit worried when things are slow and react by dropping their prices lower and lower to try and obtain work when it wasn't the price which was the obstacle anyway. It can lead to eventually going out of business.
I remember back when I first started and I wasn't getting any work, I always thought I was too expensive when in fact I was too cheap.

[Spot On cleaning]

Whil'st i would agree about lowering prces is a bad thing to do, sometimes if you havelittle work to do, better to work for a reduced rate than to not pay the bills.

Cutting one's nose off to spite ones face.  This customer can also lead to further work, either from them or from their recommendations. Remember, some businesses offer their first job at a reduced rate to attract people to them in the first place.

If you charge £40 a lounge, an extra fiver wont break the bank, and added up per year is a lot assuming 3 or  jobs a day. When i first become self employed i was given a business mentor for a year to advise me. One thing he told me was to get £20 an hour was acceptable, but to work for as low as £10 if need be.

Now i am getting between £40 - £60 per hour with my tm, but occasionally the job takes longer than i thought, so i end up with £30 an hour. Still a reasonable ammount. Look in the jobs pages out there. If you can get the rate, good, if not weigh it up first.

Dave

[AJCleaningServices]

Dave,

May I ask you how many hours per week you are actually working?  Forgive me if this question is not appropriate and ignore it, tanks.

John, very good topic.

Kind regards,
Arthur

[Spot On cleaning]

Arthur

Most days i work 8 hrs a day or even 10hrs if busy. What i would say is that i do not worry about time. It's all about what you are happy with.

Because i have lots of kids, i try to get time with them. Money is not my god.

Dave

[craigp]

dave you have just told us you earn an average of £50 an hour and work 50 hrs a week,   thats £2500 a week,  i doubt thats right,

 i want to point this error out (i asume its an error, if its not im doing something wrong) because many people read these boards who are only just thinking of coming in to this bus. and it gives a false impresstion of what can be earned, this market pretty satuarated as it is.

regards, craig

[AJCleaningServices]

Craig,

I am trying to work out for myself what I could actually expect getting into carpet cleaning business (once established).  Turnover has been discussed here and here.

What is your opinion on this matter?   

Kind regards,
Arthur

[Mike Halliday]

just cos you go out of the house at 9 and come in at 5 does'nt mean you work a 8hr day you might actually only be 'working' for 4 hours of that. The rest of the time your are travelling and fannying about.

I earned about £55 an hour today but only worked for 4.5 hrs although i left at 8.30 and did'nt get in till 2ish

Mike

[craigp]

i know mike, but people (not in the industry) will come to the conclustion i pointed out, i just think when we talk about income we also need to tell the other side of the story, the hours spent working for nothing delievering leaflets,etc, cost of advertising, days with no work, still having to find money for bills.

[AJCleaningServices]

Good point Mike,

Why do not you post your picture so we could see whether you are England’s 3rd best looking carpet cleaner!!

By the way who is first and second?

Kind regards,
Arthur

[Spot On cleaning]

Craig

I Wish : : :

What i meant was what i said earlier.  I earn between £40 an hour domestic to £60 an hour commercial. If the job effectively takes longer than anticipated, then i can be working for a lot less. The lowest per hour so far is £26 an hour.

As you say it's the traveling in with this figure of eight hours and not solid eight hour working, unless its a big job of course.

Usually if the jobs are around £60 a time, i try for 4 a day (lounge + stairs) and i try to spend 1 to 1 and a half hours on each, depending on furniture.

Sometimes a tm in small areas with the pipes can slow me down a little bit.

I don't think i would know how to spend £2500 a week anyway.

Dave