Friday, August 8, 2008


For every businessperson, fixing profits is a challenging task. However experienced an individual might be there is always possibility for failure in judgment. Let us look at the same in detail.


There is no standard yardstick by which we can fix profit margins on products. However it all depends on the experience and expertise in the trade. It also depends on the business acumen and gut feeling.

When products are bought every trader expects of selling the entire stock based on intuition and gut feeling. But unfortunately things do not work out the way one expects. Therefore, it is essential to discount some sales against the estimated and pre-judged purchases. If the gap between the judgment and reality in sales is vast then the stocks would pile thereby becoming dead stock. Profits or margins on the goods have to be set in such a way that the fast moving products or goods are sold with nominal profits as the goods are sold immediately and also the rotation of stocks is faster thereby having the desired profits against the slow moving products. In the case of slow moving products it is necessary to have higher margins as trading volumes are thin and also stocks may result into dead stocks.

In the case of seasonal products it is necessary to keep higher margins as failure to sell the stocks seasonally result into getting dead stocks. On the contrary, in the non-seasonal stocks i.e. the ones that sell round the year can be charged with lower profits as there is immediate liquidity and quick rotation.

If the products or goods are not available in the market massively but a very few traders hold such stocks it is necessary to fix little higher margins as there is less competition. Similarly if the products or goods or newly introduced, there would be least sales initially and, therefore, it is advisable to keep decent profits.

Fixing of profits by manufacturers, wholesalers and retailers varies from product to product and from time to time and also depends on the availability of similar products with their competitor. Fixing of profits also depends on the frequency of business rotations. Besides it also depends on the rate of turnover (volume). Usually higher the volume lower the margins fixed on the products.

Let us now look at fixing of the profit margin for the products where there is sudden spurt in demand.


Few products would have fast pick up in sales as the demand suddenly spurts. Such products would have sudden drop in sales as well. It is very difficult to anticipate the sales for such products. It is in this context there would be piling up of stocks leading to dead stocks. As a result, it also minimizes the rotation of capital. Therefore, there is strong need to liquidate the stocks. Overall, the trader has to be cautious in his approach while placing purchase orders as well as in fixing the profits on such items. If there is monopoly in a specific product then the trader can enjoy higher profits. But in the present business scenario there is no room for monopoly of products as the market is wide open and also every trader has access to information due to the rapid growing technology and communication services. Hence, it is advisable to strike the balance during purchase with a view to limit the losses. One should not be too greedy to make money as it may boomerang.


Always satisfied costumer is an asset to any business. Therefore, the traders have to fix their profits on the products at a reasonable level so as to have steady sales with steady revenues keeping both the costumers and competitors in mind.


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