This page teaches how to weigh a price cut against the extra volume it might sell, for a domestic retail buyer, a planner, or a brand-side contact who has to decide between holding a price and cutting one. Lesson 5.1 showed how to set a price from a margin target; this lesson shows that the highest-margin price is not automatically the most profitable one once volume is allowed to change with price. This lesson mainly teaches the money flow: it compares two complete plans for the same style, one holding a higher price on a smaller confirmed quantity, one cutting price to move a larger quantity, and it measures total profit rather than either plan's own margin percentage alone.
A buyer who only ever asks "which price gives the best margin" can reject a lower, lower-margin price without noticing that price would have sold more units and produced more total profit for the business overall. Without this skill, a retailer defends a margin number that looks strong on paper while a competitor selling more units at a smaller margin earns more actual money on the same style.
You need: the pricing formula from Lesson 5.1, price = cost ÷ (1 − margin target), and a working understanding of margin and markdown. Lesson 5.1 (Setting an initial retail price that supports the season's own margin target) is useful preparation, though not required.
By the end of this lesson you can:
Not covered here: setting an initial price from a margin target (Lesson 1), pricing a private-label style against a comparable branded style (Lesson 3), and building a complete pricing and profitability worksheet across every stage (Lesson 4).
| Term | Meaning |
|---|---|
| Total profit | Profit per piece multiplied by the number of pieces actually sold, the figure that decides which of two price plans earns the business more money. |
| Price-volume plan | A stated combination of one selling price and the quantity a retailer expects to sell at that price, used to compare against another such plan. |
| Margin | Profit divided by the selling price, shown as a percentage of what a company sells for. |
| Markdown | A reduction in the shop price of goods that have not sold as forecast, used to clear the remaining stock. |
| Reorder | A repeat purchase order placed against a style the retailer has already sold before, based on its own forecast rather than a new buyer commitment. |
Margin measures profit as a share of one unit's own selling price; it says nothing about how many units actually sell at that price. Total profit multiplies profit per piece by the number of pieces sold, so a lower price with a smaller margin per piece can still produce more total profit than a higher price with a larger margin, if the lower price sells enough extra units to make up the difference. A buyer who compares two prices on margin alone, without also comparing the volume each price is expected to move, is comparing the wrong figure for the actual decision in front of them.
| What can differ | The shapes you meet | Why it matters |
|---|---|---|
| Domestic MTS vs. export MTO | A domestic Make to Stock retailer such as Cedar & Co. can reorder more units mid-season if a lower price is selling well; an export Made to Order retailer commits its full quantity before the season starts and cannot add units mid-season even if a lower price would have sold more | An MTO retailer has to get the price-volume plan right before commitment, since there is no reorder option to correct it later |
| A price cut with confirmed extra demand | A retailer runs a small trial at a lower price and confirms it actually sells the extra volume it hoped for | Confirmed volume makes the total-profit comparison reliable, since both prices' own quantities are now known facts rather than forecasts |
| A price cut with only a forecast of extra demand | A retailer cuts price on a full run without first testing whether the extra volume actually appears | An unconfirmed volume forecast turns the total-profit comparison into a bet, not a calculation, since the lower price's own extra units might not materialise |
| A markdown applied to unsold stock late in the season | A retailer cuts price only on remaining unsold units, after the season's own regular sell-through has already happened at the original price | This is a different decision from setting the original price-volume plan; it protects some profit from stock that would otherwise not sell at all |
| Product families | The same total-profit comparison applies whether the style being priced is apparel, socks and hosiery, knit-to-garment, terry and towels, or home textiles and bedding | A retailer new to this comparison often starts with a single style it already sells at two different price points, then extends the method to other product families later |
Cedar & Co., a domestic brand with 12 shops, buys a style equivalent in value to Order A from Delta Garments at USD 8.00 per piece, planned to sell at its usual USD 19.90 shop price. Cedar & Co.'s own hybrid buying pattern commits 12,000 pieces against forecast and holds 3,000 pieces back as a reorder option. Omar, the owner, is weighing two plans for the full 15,000-piece style: hold the USD 19.90 price and sell only the confirmed 12,000 pieces, or cut the price to USD 15.92, Order A's own fixed 20% markdown level, to try to sell the full 15,000 pieces including the reorder.
Omar needs to know which plan actually earns Cedar & Co. more money before deciding whether the price cut is worth taking, rather than assuming a higher margin automatically means a better outcome.
The worked numberWorking through both plans shows the opposite of what the question first suggested: Plan A, holding the higher price, actually earns Cedar & Co. USD 24,000 more total profit than Plan B, even though Plan B sells 3,000 more pieces. The larger margin per piece on Plan A, USD 11.90 against USD 7.92, outweighs the extra volume Plan B sells, because the price cut of USD 3.98 per piece costs more across every one of the 15,000 pieces than the extra 3,000 pieces add back.
A common mistake is assuming that a price cut expected to sell more units must be the better plan, because "more units sold" sounds like more business, without actually calculating whether the extra units make up for the smaller profit earned on every single unit, including the units that would have sold at the original price anyway. If Cedar & Co. cut its price to USD 15.92 assuming more volume automatically meant more profit, it would have given up USD 24,000 of total profit without realising it, since the price cut applies to all 15,000 pieces, not only the 3,000 extra pieces the cut was meant to move.
A higher price on fewer units and a lower price on more units are two different plans, and the one with the better margin percentage is not automatically the one that earns more actual money. Total profit is profit per piece multiplied by how many pieces actually sell, so both numbers have to be checked together. On Cedar & Co.'s own style, holding the USD 19.90 price and selling only the confirmed 12,000 pieces earns USD 142,800, more than cutting to USD 15.92 to sell the full 15,000 pieces, which earns USD 118,800, because the price cut applies to every piece sold, not only the extra ones the cut was meant to attract.
Cedar & Co.'s visual merchandising team has proposed cutting the shop price to USD 15.92 for the remaining season, arguing it will help sell through the full 15,000-piece style including the 3,000-piece reorder. The facts in front of the buying team:
The note from the merchandising team's own file:
Should the buying team approve the price cut before calculating and comparing both plans' own total profit? Decide before you open the decision.
No. The buying team should calculate and compare both plans' own total profit before approving the price cut.
Two facts decide this. First, this lesson's own rule states that the price with the higher margin is not automatically less profitable in total, and the worked number shows Plan A actually earns USD 24,000 more than Plan B here, the opposite of what "more units sold" suggests on its own. Second, the proposed cut applies to all 15,000 pieces, not only the 3,000 extra pieces it is meant to sell, so its cost is larger than it first appears; this lesson's own trap warns exactly against approving a volume-driven price cut without running this full calculation.
Approving the price cut without this comparison risks giving up real total profit for a plan that sounds better only because it mentions a bigger number of units sold, not because it was actually shown to earn more money.
This USD 24,000 is what Cedar & Co. would give up across the style if it approved the price cut expecting the extra volume to pay for itself, without first running the comparison this lesson's method sets out. It is not automatically wrong to choose a lower price and more volume in every situation, some styles do earn more total profit that way, but the choice should follow the calculation, not precede it.
Use the T20-C05 Pricing and profitability worksheet. For Cedar & Co.'s own style, enter both plans, the price and the expected quantity sold for each, and the sheet calculates profit per piece and total profit for each plan side by side, so the comparison this lesson teaches is visible on the page before either plan is approved.
[Download the Pricing and profitability worksheet](../../templates/T20-C05-pricing-and-profitability-worksheet.xlsx)
1. Why is the price with the highest margin not automatically the price that earns the most total profit?
2. Cedar & Co. compares Plan A (12,000 pieces at USD 19.90) with Plan B (15,000 pieces at USD 15.92), both against an USD 8.00 cost. Which plan earns more total profit?
3. A domestic Make to Stock retailer is deciding whether to cut price to sell more of a slow-moving style. What should it check before committing a full price cut?
| EN | AR | FR | TR | Meaning |
|---|---|---|---|---|
| Total profit | إجمالي الربح | Profit total | Toplam kâr | Profit per piece multiplied by the number of pieces actually sold, the figure that decides which of two price plans earns the business more money. |
| Price-volume plan | خطة السعر والكمية | Plan prix-volume | Fiyat-hacim planı | A stated combination of one selling price and the quantity a retailer expects to sell at that price, used to compare against another such plan. |
| Margin | الهامش | Marge | Marj | Profit divided by the selling price, shown as a percentage of what a company sells for. |
| Markdown | تخفيض السعر | Démarque | İndirim (markdown) | A reduction in the shop price of goods that have not sold as forecast, used to clear the remaining stock. |
| Reorder | إعادة الطلب | Réassort | Yeniden sipariş | A repeat purchase order placed against a style the retailer has already sold before, based on its own forecast rather than a new buyer commitment. |
You now know how to weigh a price cut against the extra volume it might sell, on total profit rather than on margin alone. The next lesson applies that same profit thinking to a different comparison: pricing a private-label style against a comparable branded style sold alongside it. Back to the course map