Jump to content
The Wifcon Forums and Blogs

Recommended Posts

I am taking a course and need some assistance. I need to provide a few discussion points for the following and am hoping someone can assist.

  1. Why does a 5% reduction in purchase acquisition cost have a greater affect than a 5% increase in sales?

 

Share this post


Link to post
Share on other sites

What kind of assistance are you asking for? I assume you're not asking for someone to answer the question for you.

Do you know the answer?

Share this post


Link to post
Share on other sites

I am not sure I quite understand the question so my initial answer would be: The cost of acquisition is one of a companies largest expenses which directly affects profitability

Share this post


Link to post
Share on other sites

From a math point of view:

Starting Scenario
   
 $  120.00 Price of Goods
 $  100.00 Cost of Goods
   
 $    20.00 Profit (Price - Cost)
20% Profit % (Profit/Cost)
   
Scenario 1 (Cost of Goods reduced by 5%)
   
 $  120.00 Price of Goods
 $    95.00 Cost of Goods (down 5%)
   
 $    25.00 Profit (Price - Cost)
26% Profit % (Profit/Cost)
   
Scenario 2 (Increase Sales (Qty) by 5%)
   
 $  126.00 Price of Goods (up 5%)
 $  105.00 Cost of Goods (up 5%)
   
 $    21.00 Profit (Price - Cost)
20% Profit % (Profit/Cost)

Share this post


Link to post
Share on other sites

A reduction in cost goes directly to the bottom line while an increase in sales usually does not because the sale price is set based on market conditions and is before taxatiion.  .

Share this post


Link to post
Share on other sites

Of course, it depends on what you're doing to cut the cost, what if any effect that will have on sales, and what your competitor does. Think about saving five percent by making the candy bar smaller.

Share this post


Link to post
Share on other sites

Vern, you are right.  I should have said it has an immediate impact on the bottom line.  That could be lost later.   Many times the desire for immediate results winds up hurting and not helping the company. 

Share this post


Link to post
Share on other sites
1 hour ago, Boof said:

Many times the desire for immediate results winds up hurting and not helping the company. 

Unless the company is an airline. I understand that they're going to cut costs by eliminating seats. They'll save all kinds of money on seat cleaning and maintenance. Just throw rugs from now on. Americans will endure anything to save a few bucks on airfare.

There's already been talk of eliminating pilots. (Seriously.)

Share this post


Link to post
Share on other sites

Yup.  I had a friend who worked at FAA that kept insisting they get rid of the pilots everytime we heard about a plane crash in the media. This was way back in 2008 and 9.  He insisted computers fly better than pilots.  Tell that to those people who survived landing in the Hudson River and it is obviously not the computer on my desk.  .   

Share this post


Link to post
Share on other sites

I like how Ben Franklin really put it (common misattribution explained):

" 1. "A penny saved is a penny earned."

Did Ben Franklin say it? No.

"Franklin never actually said his most famous misattribution," McCormick said. "The actual quote from 1737 is 'A penny saved is two pence clear,' which is far more financially sophisticated. The misquote blends cost saving with revenue creation and stays completely on the income statement. The actual quote comes from the balance sheet."

From:

https://www.sciencedaily.com/releases/2015/07/150701152634.htm

Share this post


Link to post
Share on other sites
Guest
This topic is now closed to further replies.

×