Official Forums for the Ultimate Economy Game



Jump to:  
Search for:
The Simunomics Forums require separate registration from the game itself. However, forums and chat use the same registration.

It is currently Sun Feb 16, 2020 7:24 pm (All times are UTC [ DST ])




Reply to topic  [ 24 posts ]  Go to page 1, 2  Next
Author Message
 Post subject: Pricing in Retail Stores
PostPosted: Thu Oct 30, 2008 8:26 pm 

Joined: Oct 20, 2008
Posts: 561
Offline
As you know Retail Stores do have a significant ROI at this time and one of the most important questions about retailing is;

"For what price should I put my products to make most profit?"

If you read the FAQ you should be aware that Price is a function of Quantity and Time. If you keep quantity fixed and increase Price you will see Time increases as well. That increase is unfortunatly not linear but polynomal. If you sell for too cheap, time will decline rapidly, if you sell for too expensive, time will increase more rapidly. So that means there is an optimal price value for your product which you can calculate easily.

What we need to do is calculating profit/day value for a fixed quantity and varying prices. Usually I take quantity = 1 (if you are selling cheap products like fruit you may want to use 100 for simplicity)
Let me show this with an example in my Tech Supply Store. I sell Fixtures which I buy from NPC.
Cost of 1 Fixture (including market fee) is β 1281,42. So I think about a reasonable price and start calculating. β 2000 would bring me nice profit (β 718,58) for each Fixture so I type 2000 as price and 1 as quantity. System tells me 1 Fixture would be sold in 74,75 minutes. I calculate from that value, that I could sell 19,26 Fixtures each day. My daily profit would then be 19,26 * β 718,58 = β 13.842. Nice number but could that be better? maybe. This time I try β 2100 and see my daily profit increases to β 14.570. Wow nice jump. Let's continue this calculation until we find the maximum point:

Code:
   Price   Market Price   Minutes   Per Day   Profit   Profit Per Day
   2000   1281,42   74,75   19,26   718,58   13842,87
   2100   1281,42   80,9   17,79   818,58   14570,52
   2200   1281,42   87,5   16,45   918,58   15117,20
   2300   1281,42   94,5   15,23   1018,58   15521,21
   2400   1281,42   103   13,98   1118,58   15638,4
   2500   1281,42   111,66   12,89   1218,58   15715,16
   2600   1281,42   121   11,90   1318,58   15692,19


As you see β 2500 brings me the highest profit. After that point Profit begins to drop. If I had trusted my instincts and put β 2000 as Price I would loose about β 5.7k/day (with 3 slots). That might seem little but that cuts your ROI significantly.

So you now know how to pick best price. But is that enough to make this calculation once and stick to it weeks? Well this calculation will be effected if:
1- Your Product Cost changes
2- Average Price of that Product changes
Maybe I could also add that anything which changes your selling rate would effect this calculation but in my experience that doesn't have a significant effect on maximum profit point.

So you can do this calculation once a week and you'll be fine.

_________________
Pentex Corporation.
Anything you need, Anytime you need, Anywhere you need.


Last edited by Arthon on Fri Oct 31, 2008 6:27 am, edited 1 time in total.

Top
 Profile  
 
 Post subject:
PostPosted: Thu Oct 30, 2008 9:11 pm 

Joined: Jun 26, 2008
Posts: 1090
Location: Sydney, Nova Scotia (Canada)
Offline
At my appliance stores I sell 10 fixtures for 3k each making me aprox 1800 each of 18k in total.

_________________
Tecko Industries

My Buy Thread

Albert Einstein wrote:
Imagination is more important than knowledge.


Top
 Profile  
 
 Post subject:
PostPosted: Thu Oct 30, 2008 10:36 pm 

Joined: Oct 20, 2008
Posts: 561
Offline
Tecko wrote:
At my appliance stores I sell 10 fixtures for 3k each making me aprox 1800 each of 18k in total.

My appliance store is on standard land. If yours is on suburban stripmall that is quite possible as a matter of fact you are under optimal value. So what is your point?

_________________
Pentex Corporation.
Anything you need, Anytime you need, Anywhere you need.


Top
 Profile  
 
 Post subject:
PostPosted: Thu Oct 30, 2008 10:50 pm 

Joined: Jun 26, 2008
Posts: 1090
Location: Sydney, Nova Scotia (Canada)
Offline
I don't know, my building is on suburban stripmall and it is an appliance store. That gives me a 12.4% sales time advantage over you, maybe more or less depending on training. That means if we have equal training then you should be able to sell for 2628 considering we are in both in Abalesk. I suppose it is the training difference...

_________________
Tecko Industries

My Buy Thread

Albert Einstein wrote:
Imagination is more important than knowledge.


Top
 Profile  
 
 Post subject:
PostPosted: Thu Oct 30, 2008 11:14 pm 

Joined: Oct 20, 2008
Posts: 561
Offline
That was just an example. There are off course many factors effecting sales time but this method works for all cases regardless of your sales efficiency.

_________________
Pentex Corporation.
Anything you need, Anytime you need, Anywhere you need.


Top
 Profile  
 
 Post subject:
PostPosted: Fri Oct 31, 2008 1:56 am 

Joined: Jun 27, 2008
Posts: 313
Offline
I of course agree with your method. :grin:

One tip for formatting: When you want to present a chart of data, if you put it in [/code] blocks (just like you would with a quote) it will be easier to format with spaces and what not.

_________________
The Guide to Managing your Simunomics Business:
Lesson 1: Should Bill Gates cut his own lawn?
Lesson 2: The Apple Forest or the Apple Tree?
Lesson 3: Which Business is Best?
Lesson 7: All is Well - Advantage Mine or Raw Deal?
Lesson 8: The Art of the Business of War


Top
 Profile  
 
 Post subject:
PostPosted: Fri Oct 31, 2008 3:50 am 

Joined: Oct 30, 2008
Posts: 28
Offline
Revenue maximization does not equal profit maximization. The profit maximizing price is probably higher than the revenue maximizing price. The reason? You had to PAY for those goods, remember? Suppose I am retailing, and I can sell one unit for double the wholesale price, or sell 1,000 units at the wholesale price. I would get lots of revenue by charging the wholesale price, but zero profit.


Top
 Profile  
 
 Post subject:
PostPosted: Fri Oct 31, 2008 6:25 am 

Joined: Oct 20, 2008
Posts: 561
Offline
Tifforo1 wrote:
Revenue maximization does not equal profit maximization. The profit maximizing price is probably higher than the revenue maximizing price. The reason? You had to PAY for those goods, remember? Suppose I am retailing, and I can sell one unit for double the wholesale price, or sell 1,000 units at the wholesale price. I would get lots of revenue by charging the wholesale price, but zero profit.

Oh sorry for the confusion English is not my mother language.. I ment profit not revenue. Editing now.

_________________
Pentex Corporation.
Anything you need, Anytime you need, Anywhere you need.


Top
 Profile  
 
PostPosted: Tue Jun 14, 2011 12:01 pm 

Joined: Mar 5, 2011
Posts: 1017
Location: Vienna
Offline
User avatarHulesch+Quenzel
Brainstormer
Arthons method is quite good to start with.
But it has the disadvantage that you need quite al lot of tries if you are as stubborn as me, who wants the BEST price.

The optimum price is the price you get the maximum profit from quantity * (price - wholesalePrice).
WholesalePrice is the price you got the stuff no matter if you produced it or bought it and is conveniently shown when you put something in a rack.

Binary search is the first step to a better solution but I use the following method that is even a tad faster and also finds the best price for sure:

I go with a fixed time and use the "Time and Quantity" method.
I enter 3 quantities and write them and the resulting prices down in a spreadsheet.
In principle it does not matter what 3 quantities you take, but the more realistic they are the faster the following process will be.
Now as Arthon mentions the qty->price function is polynomial in fact it resembles a parabola ax²+bx+c=y where x is the quantity and y is the price.
Given 3 points x1/y1 x2/y2 x3/y3 you can get the a,b,c of that formula. Check the net for that, if you don’t know how (hehe). But it is elementary math.
So I let a macro run with the noted 3 quantities and prices, that finds a,b,c and also finds the APEX which should give
the best profit.

As the formula is only an approximation, the correct price has now to be received from entering the quantity in my shop.
Now the new pair qty/price, or point x/y replaces the worst result (lowest profit) of the previous 3 points.
rinse and repeat.
After 2-3 loops the macro does not find any better point and so I got the optimum qty and the optimum price.

I know, that’s all bit crazy, but maybe some of you are as crazy as me and like it.

_________________
For the Snark was a Boojum, you see.
(Lewis Carroll)


Top
 Profile  
 
PostPosted: Tue Jun 14, 2011 12:34 pm 

Joined: Nov 6, 2009
Posts: 4948
Offline
User avatarReal Value
 
For those who are really lazy and don't want to calculate prices every time they sell, a reasonable rule of thumb is to use 2x cost as a reasonable price. For the fixtures example above, 2x cost would have been very close to optimal. Sometimes, if there is not much competition, you can push prices up some to 2.5x cost, but I generally use 2x cost (meaning, cost to buy from a producer, not cost to make it yourself).


Top
 Profile  
 
PostPosted: Thu Jul 28, 2011 3:43 am 

Joined: Jul 27, 2011
Posts: 464
Offline
User avatarTifanta World
Bellerive Chamber of Commerce
This is really useful information for a new player. It didn't take long for me to work out a guesstimate spreadsheet in Google Docs to help find optimal/near optimal pricing figures.

You have 3 inputs, each with its own column:

Sell Price
Market Price
Minutes

Then there are 5 more columns with various calculations:

Sold Per Day: simply the # of minutes in a day (1440) divided by the value in the "Minutes" cell.

Item Profit: "Sell Price" - "Market Price" (you are going for a profit, right???)

Profit Per Day: "Sold Per Day" * "Item Profit"

Sold Per Week: "Sold Per Day" * 7 (this is just for my personal convenience, since I like to set up for a week of sales at a time)

Profit Per Week: "Profit Per Day" * 7 (again, just convenient to be able to see this information, given the way I like to set up)


EDIT: Now that I think about it, it would probably be easier to have a "Seconds" column instead of "Minutes" and then just calculate "Sold Per Day" as 86400 (seconds in a day) divided by "Seconds."


Top
 Profile  
 
PostPosted: Sat Nov 19, 2011 7:31 pm 

Joined: Nov 15, 2011
Posts: 1
Offline
Divamics Corp.
I'm new and have a question about this. What about Warehousing costs. Wouldn't this also factor into whether you will make a product? Has anyone done a formula for working that out?

Thanks in advance.


Top
 Profile  
 
PostPosted: Sat Nov 19, 2011 10:31 pm 

Joined: Nov 6, 2009
Posts: 4948
Offline
User avatarReal Value
 
Warehousing does not have a cost, but there is a "cost" of the capital used to buy inventory. The more inventory you have, the more cash you have used to hold it, which is cash that might have been able to be used to make more money for you otherwise. If you have debt, then this cost is a real interest cost of the debt, which is partly needed to finance inventory.


Top
 Profile  
 
PostPosted: Sun Jan 01, 2012 5:51 pm 

Joined: Nov 25, 2011
Posts: 49
Offline
User avatarWidget Maker
 
I just use the PHIL. There is a recommended retail price range. I set my price at mid range and let loose the dogs of marketing. I might not be making the optimal profit but time used to figure out the pennies isn't worth the effort.


Top
 Profile  
 
PostPosted: Tue Jan 03, 2012 10:43 pm 

Joined: Oct 28, 2009
Posts: 803
Offline
User avatarAPCE Production
Automotive Genius
whariwharangi wrote:
I just use the PHIL. There is a recommended retail price range. I set my price at mid range and let loose the dogs of marketing. I might not be making the optimal profit but time used to figure out the pennies isn't worth the effort.


If I used middle phil pricing, my profits would be closer to 1.3 billion per day compared to 1.8 billion per day.

Save all of those pennies, then one day you'll be able to get something worthwhile, don't you think? With those pennies, I bought the stores that profit me in the billions on a daily basis.

APCE

_________________
APCE Production


Top
 Profile  
 
Display posts from previous:  Sort by  
Post new topic Reply to topic  [ 24 posts ]  Go to page 1, 2  Next

It is currently Sun Feb 16, 2020 7:24 pm (All times are UTC [ DST ])


Who is online

Users browsing this forum: No registered users and 1 guest


You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum

cron
Powered by phpBB © 2000, 2002, 2005, 2007 phpBB Group