Recovery

If your fixed costs are $X a day you might have a price point of $2X to make a profit. If the product or service has a limited life shelf, you might have to be willing to sacrifice profit, and even think more in terms of recovery.

As an example, you might have a conference center that rents for $500 a day. You will have some fixed costs (mortgage/lease, insurance, taxes etc) that have to be paid whether the conference center is used or not. It’s easy to say “we don’t want to lower the value of our center so we don’t discount” but in doing that you are maximizing losses. If you can rent the center for $300 a day you don’t increase profits but you do help recover some of the potential losses.

Recovering losses can help maximize profits in the long run. Failure to understand the importance of recovering costs will greatly increase the likelihood of failure.

Have a great day!

Lawrence

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