This is done by some employee designated by the Exchange Officer; sometimes it is done by the Exchange Officer himself. It is sometimes prescribed by the Council that when organizations (shareholders in the Exchange) order articles not in stock, the selling price shall be actual cost to the Exchange of such articles. This cost would, of course, include any transportation charges, etc., that were incurred, but the Exchange would get the benefit of all cash discounts. It is also prescribed in some instances that persons not stockholders in the Exchange who order merchandise that is not in stock shall be charged a commission of 5%. Both of these rules are sound, because, in the first case, any profits made by the Exchange would simply revert in dividends to the organizations from which the profits were made, assuming that all organizations transacted the same amount of this kind of business. If they did not, it would still be unjust to penalize one company for patronizing the Exchange by taking from it money for distribution in dividends to other companies, regardless of the amount of patronage the latter gave the Exchange. The second rule is sound because the transaction is a quick sale, and the money of the Exchange is tied up in stock for the minimum length of time. The selling price in the above cases is, therefore, very easily determined.
In figuring out the selling price for the ordinary run of goods, the process, while different, is never very difficult. We must base our calculations on the smallest value used in coupon sales, except in the case of staples sold only to charge customers. Ordinarily, the smallest purchase that can be made with coupon books is five cents. We should, therefore, in every possible case, make our selling price a number divisible by 5. Cheap articles may be sold “2 for 5”, etc. It is a bad policy to sell articles for 4 or 9 cents and have the clerk hand back change when a coupon sale is made.
Articles that can be quickly and easily sold can be handled at a small margin of profit, but articles that may prove to be “stickers” or those representing a considerable investment should be made to pay a larger profit.
In this connection, the general policy of the Exchange may be made to take one of two trends. The first policy is to sell all articles at the minimum price consistent with making the Exchange self-supporting. In this case, the amounts paid to the organizations in dividends will be proportionately small, and consequently, the various companies will receive little money to spend on their messes, athletics, etc. This plan would be of considerable benefit to such customers of the Exchange as are not stockholders.
The other policy is to charge about the same prices as obtain in the stores of nearby towns. In some cases of isolated posts, the prices could be put even higher. This plan would result in larger dividends paid to the companies but might entail the loss of customers, especially in these days of mail-order and catalogue houses. This latter policy is upheld by many able authorities, especially since the passage of the “anti-canteen” law. According to one of the most able officers the writer has ever known, this policy was stated about as follows:—“We should charge as high a price as the traffic will stand. I do not want my men to spend their money in town, for obvious reasons. I want them to spend it where they themselves will get the benefit of the profits made on their purchases. Therefore, give them good value for their money—as good as they can get anywhere—but do not try for low prices and do make the Exchange so attractive that they will naturally gather there and patronize it.”
In view of the above facts, and knowing the general policy of the Exchange it is not difficult in the ordinary case, to fix a selling price for our goods. We simply add the cost of transportation to the cost price of the goods, add the desired profit and this gives us our approximate selling price. In some Exchanges, other items of overhead charges, such as clerk hire, depreciation, etc., are taken into consideration in fixing the selling price. There should be ample space in the right hand columns of Form 28, the receiving record, in which to figure the selling prices.
One of the results to be tried for in every Exchange is QUICK SALES. It is a serious mistake to keep money tied up in stock any longer than is absolutely necessary. A vivid illustration of this point is obtained by taking the case of, say, an Italian banana vendor on the street. Let us assume that he buys a bunch of bananas in the morning for $1.00. We may rest assured that he will have sold out by evening; it is a certainty; he is too good a merchant to do otherwise. Even supposing that he had a bad day, and was compelled to close out part of his stock in the evening at cut prices, he will have realized anywhere from $1.50 to $2.00 on his sales, thus giving him from 25% to 50% gross profit. At this rate, he will turn over his capital at least 25 times during one month, thus transacting a total amount of business 25 times greater than his actual net resources, and securing a profit equivalent to that of the greater amount. This is the ideal toward which the Exchange should strive.
In this connection, do not state your profits as a percentage of the COST price of your goods, but of the SELLING price. In other words, if an article costs the Exchange $10.00, do not add one dollar to this for the selling price and then imagine your profits will be 10% of your sales. If you desire 10% profit, then the cost must constitute 90% and you must sell the article for $11.11 in order to make 10% on the sale. Take a pencil and figure it yourself. A very good talk on this subject (and many others of interest) is given in “A Better Day’s Profits”, published by the Burroughs Adding Machine Company.
Another most excellent book containing many hints which would prove of value to any Exchange Officer is one entitled, “Where Have My Profits Gone?”, published by the American Sales Book Company of Elmira, New York.