Retail Margins: Why a two-fer offer for your staple items can improve sales and gross profit dollars.
Welcome to material retail dumps episode three. This is the second in a series of episodes designed to help independent retailers improve cash flow and gross profits by managing inventory more efficiently. My name is Elliot, and in this episode, we will focus on twofers what they are, what they're meant to do and what, why they work for your gross margins and cash flow. So what's a twofer. Simply a twofer is a deal where you offer your customer two for one pricing or two for X pricing. For example, you're a home goods boutique, and you sell scented candles. You have a certain brand that you have in 12 different flavors. So you'll price them at one for 12 or two for 20 giving the incentive for your customers to buy two instead of one. So you ask, why would I do that? What's the purpose. The purpose is so you can increase your average order value and also increase your gross profit dollars.
And you'll also improve inventory turn we learned in episode two of the podcast, while inventory turn is super important, how much money you'll make at the end of the year, if you haven't listened to it yet, I strongly recommend going back and listening to that. It'll put a lot of this in context. All right. So as a retailer, you might ask, I like making full margin. I don't wanna mark my products down. I don't wanna give my customers a sale. I could sell this product at full price. Why on earth would I mark the product down? Would I sell two for 20? If I could just sell two for 24? So you have two options here. If you really hate the idea of giving a little bit of a discount to the customer, toque increase the quantity of sales. You could be smart where your pricing, if you wanted to sell the product for $10 each in the beginning, just price the item at one for 12 and two for 20 this way.
If a customer buys one, you make more money. And if a customer buys two, you still make more money because you sold them at the original retail price, but you sold two. But now you know that doesn't always work. Customers tend to be smarter and they'll probably catch on if you're raising your prices just to reduce them. I know we all make fun of the big box retailers that take everything off of the sale rack, just to do a friends and family and give 20% off. Like you don't want to be that retailer. So now second, let's jump in and see if you do decide to go at this method, let's see how the math works out. Let's see if you really make more money. So in this example, we're gonna go with dissented candles. Let's say you buy a hundred pieces of the candle for $5.
Each you expect to sell those a hundred pieces to a hundred different customers in a hundred different transactions at $12 each it'll take you three months to sell those. That brings you $700 in gross profits in three months or $233 a month. Now let's say you decide to go one for 12, two for 20. Let's see when the math works in your favor. So let's assume 33 customers will buy that candle a month just like above. So if half of your customers decide to take you up on the twofer, it takes two months to sell through those products. Cuz 33 customers buy
1 33 customers buys two. That's your a hundred products you'll take in $568 in gross profits over two months or $284 a month, which is 22% more gross profits per month on that product. Now let's make it a little bit worth worse. Let's say only a quarter of your customers decide to take you up on that two for order. So you'll actually do a little more in gross profit dollars, which is $600 in gross profits. But it'll take you a little more time to sell those. So like two in a third month and it'll take about 75 transactions. So you'll bring in 264 month in gross profit dollars or 13% more per month. So it's not great, but it's still better. 13% is better than nothing. Now let's get really aggressive and let's assume the deal is so good that a hundred percent of customers take you up on the two.
It takes you 1.5 months to sell through the products. And you made 500 in gross profit dollars, which is the least amount of gross profit dollars that you made on this buy that you did. However, it only took you one and a half months to sell them. So that is two times quicker than if you did nothing. So that $500 in gross profit dollars actually turns into $333 a month or a staggering 42% more per month in gross profit dollars. That gives you so much time to go make up and go buy new SCED candles and start selling those contrary to what many retailers think. The more customers that take you up on your two for sale, the more money you'll actually make per month, even if you're selling it at a cheaper price. And even if only one out of four customers take advantage of the order or offer, you'll be better off inventory. Turn is a huge factor that many retailers don't take into account. We're looking at gross profit percentage and gross profit dollars. Well, that's all for today. Looking forward to the next episode. Thanks so much.