Sales Volume vs. Profit Margin: Which One Is the Best Pricing Strategy?
- January 18, 2023
There are different pricing strategies, but many businesses around the world struggle with choosing the right one.
The right strategy must therefore portray value, convince customers to buy your products, and give your customers confidence in your products in order to be profitable.
The right strategy mustn’t portray your products as low quality, make customers feel uncertain about buying, or target the wrong customers.
So, the best pricing strategy must be seen as profitable so your business can stay afloat. Otherwise, it’s just a waste of money and makes no sense.
What Is Sales Volume?
Sales volume is the number of units sold by a company in a given reporting period. The period could be a month, a quarter, or a year, depending on the volume of sales a company wants to analyze.
Investors usually use sales volume to determine the health of a company.
What Is Profit Margin?
In simple terms, profit margin is the amount left after you subtract the cost of doing business from sales revenue. It’s the measure of a business’s profitability.
There are three types of profit margin: gross profit margin, operating profit margin, and net profit margin.
Reasons for Optimizing Sales Volume
There are various reasons why companies optimize for sales volume as a growth strategy instead of optimizing for profit. These include the following:
Sales volume is an indicator of business health.
- It helps track the performance of marketing campaigns.
- It helps track sales.
- It helps evaluate the efforts of sales representatives.
- It helps choose the best locations for physical stores.
- It helps provide strategies for selling more products.
Reasons for Optimizing Profit Margin
Profit optimization is the process of looking for ways to boost a company’s profits. It involves making the best use of available resources under given constraints.
There are many reasons why companies optimize for profit:
Profit optimization puts more money in shareholders’ pockets.
- It increases bonuses and pays the CEO and employees.
- It increases the value of a company.
- It enhances business growth.
- It reduces a company’s debt faster.
- It boosts the return on investment.
How to Optimize for Profit
There are three things a company can do to increase profits:
- A company needs to take a holistic view of its business in order to understand it well.
- It should determine the root cause of problems in its business.
- Having understood the problems, a company should be able to provide the right solution in order to optimize its profits.
In essence, profit optimization can be achieved with better efficiency, better internal control, and a more orderly business process.
Can You Have a Growth Hacking Strategy at All Costs?
Growth hacking is a marketing strategy that uses analytics to discover the best way to achieve a business goal and progress. It involves content marketing, steep discounts on goods and services, major incentives, and the like.
Growth hacking is cost-effective and helps a company discover new business models and product ideas, build better products, discover data-driven strategies, and improve return on investment.
The goal of growth hacking is growth. Without proper business development, a company might be optimizing for growth without measuring the impact of some important metrics like profitability.
But can you have a growth hacking strategy at all costs? The answer is no.
Growth hackers may not consider cost when deciding how to deploy a strategy, but they can’t spend what they don’t have.
However, they can finance growth externally, but this is more expensive than using earnings from the business.
So, it’s important for a business to attain profitability before attaining growth. This way, the business can grow without sacrificing its level of profitability.
Priceagent is pricing intelligence software that allows you to know how your prices affect customers’ purchasing decisions. This helps improve your company’s sales performance and profitability.