3 Math Facts Every Small Business Owner Ought to Know

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3 Math Facts every small business owner out to know

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As a small business owner, it can become really easy to let little numbers get the best of you. While you’re busy chasing the big bucks, you are losing the little ones along the way oblivious of it. In this post, I want to show you three areas that according to Inc., all small business owners need to be looking out for. 

The first thing to look out for is giving more of a product for a discount than you for free. If you offer something for 25% off, you are offering them the same quantity of things, but you receive less money. However, if you offer them 25% percent more of the product. You have then made more profit per item than you would by giving the discount. 

Let’s look at the example given by Inc.:

“Let's say that liter of paint costs $20. The customer is paying 2 cents for every milliliter. If they're getting an extra 33 percent free, they're paying $20 for 1,333 milliliters, or 1.5 cents per milliliter. If the customer receives a 33 percent discount, they pay $13.20 for a liter of paint or 1.3 cents per milliliter.”

Promising more of a product will equal more profit than promising lest cost for a product. Plan and simple. 

The second thing small business owners should think about is your company’s price comparison strategy. In one test conducted by psychologist Dan Ariely, it was found that smart pricing can affect purchase decisions. According to Inc.:

He took a subscription offer for The Economist and showed it to 100 MIT students. The magazine was offering a digital-only subscription for $59; a print-only subscription for $125; and a print and digital subscription also for $125.

Sixteen students chose the digital subscription, and 84 chose the print and digital subscription. Not surprisingly, no one chose the print-only subscription that cost the same price as the third option. 

So Ariely took out the second option and offered the remaining two choices to another 100 MIT students. This time 68 chose the cheaper option and 32 made the more expensive choice. That second choice wasn't filling space. It was making the most expensive option look cheap. Add a lower value option next to high margin offer, and even if everyone ignores it, you'll make more profits.

The third math fact I want small business owners to be aware of is what I’d call the “warranty” scam. Whenever you buy something for your business, there is often an option to buy a warranty. Now it is typically free for the first year, but the next two years of warranty are where it gets expensive. Next thing you know, you might be paying for half of the product’s worth in warranty. On top of this, many times the product will not have issues for more than three years, making your warranty a waste of money. My suggestion is that you simply buy quality products, and replace them if needed.

For more tips and strategies on Estate Planning, Business Law, and Small Business Ownership, keep checking out the blog!

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