PSU Insight

The Importance of "Running the Numbers"

Make Money by Giving Stuff Away

Now let’s go back to the idea of "twofers" and pursue that line of thought a little further. If selling two-for-one can be advantageous (and even profitable), what about three-for-one — “buy one, get two free”? This obviously can’t work, can it?

It smacks of late night infomercials, where the announcer breathlessly promises “… and if you call in the next 20 minutes, we’ll not only give you your second radish peeler free, but we’ll also throw in your own limited-edition turnip twaddler… free!”

(Of course, don’t dismiss those late-night infomercials too quickly. Smart marketers keep doing them for one simple reason — they work.)

Now where was I? Oh yeah, we were exploring the merits of selling your CDs at a three-for-one rate. Rather than trusting the “obvious” answer, let’s run the numbers —

Keeping our previous example, if you sell a CD at the normal retail price of $10, and you throw in two more CDs for free, you’ve received $10 on the sale. You reduced your inventory by three CDs at $2 each, for a total cost of $6. That makes your profit on the transaction $4… which is still a higher profit that you make selling your CDs at half-price ($3)!

That’s worth repeating. In this example, “buy one, get two free” is more profitable than selling your CDs at half price!

Can we apply this concept any further? Suppose you offer a “fourfer” — buy one and get three free. That can’t possibly work… can it? Run the numbers! You receive $10 on the sale that costs you $8 ($2 each for four CDs). You make $2 on each “fourfer” sale — not much money… but you’re still making a profit.

In fact, you can even offer “buy one, get four free” (a “fivefer”?) and if you run the numbers, you’ll see that you break even — you don’t make anything, you don’t lose anything. But you do reduce your inventory at a breakneck pace!