Optimal Selling price for stores

Guest · Post by **Guest** » 15.03.2007, 14:21

Hi,

I was wondering if there is any tool or chart which shows the optimal selling price of items in selling stores.

Right now, I've just been building excel charts and multiplying the profit margin on something like a q0 apple by how many I can sell per hour at different price levels, and just selling at the price level that provides the highest net profit/hour.

This is tedious though. I know the speed I sell changes based on supply/demand, but are there at least decent ranges?

Guest · Post by **Guest** » 15.03.2007, 14:31

I wonder too, but the latest news is that: no........

If you have time and interests, you can make a regression

Guest · Post by **Guest** » 16.03.2007, 12:14

Hehe, I've got the same spreadsheets, but I haven't seen any tools for that either. I basically put a product in my store and record the selling rate at several different prices and then plot profit/hr versus time. I get a nice little curve that shows me the optimum rate of profit (usually well under the average since my quality is still low) and then I try to make my production match that rate that gives the fastest profit.

The hardest part for me is when I'm trying to investigate a new product line, especially if it requires a new sales building I don't have yet, is to determine how fast a product will sell. I recently ventured into the electronics business and was disappointed with how slowly it all sells (still q0 of course). I wish I could have calculated the rate before buying the electronic sales store. I guess there is some equation related to supply and demand and population, but I sure don't have time to figure it out. Anyone want to share?

Guest · Post by **Guest** » 16.03.2007, 14:29

I get a nice little curve that shows me the optimum rate of profit

This is very true, you can actually hurt your profit rate by selling too high.

Rather than all the fancy spreadsheets, you can also watch the number of customers who think your product is too high. Most products peak when this % is between 35-55, chances are, if you have less than 35 customers who think your product is too expensive, you aren't charging enough, and if you have over 55 who think you are too high, you are probably charging too much. I tend to use this as my guide, along with production coordination. Sometimes I don't care that it will take longer to sell my product, because I know I will have nothing to replace it with for so many hours anyway, so I will 'gouge' my customers from time to time, just so production can catch back up. I do always try to stay within that 35-55 range, because the 'peak' of the curve you mention, is found within that area.

Guest · Post by **Guest** » 16.03.2007, 15:31

Hehe add me to the list of excel spreadsheet users.

Of course the problem is I believe the program uses the average price in the region and the average quality as a basis for the calculation. As such each time you put an item on these values will have moved and so a different result will come out. Presumably it works something like:

time taken (min 10 mins) =
((your price - average price) * X^2
+ (average qualtity - your quality) * Y
+ (-your advertising) * Z)
* (rack space used/total rack space)

With a lot of experimentation and graph plotting assuming you have the correct formulae (^is probably missing something or just plain wrong!) it should be possible to work out a very close approximation of how the game works.

So if you can work out what the mysterious factors X Y and Z are then you are in business! (with the exception that XYZ will likely be different in red green and yellow zones)

In practice I end up doing something similar to Halee-Burton

Guest · Post by **Guest** » 16.03.2007, 17:42

That's a good tip H-B. I'll have to remember that 35-55 range when I'm in a hurry. The other thing I like about the curve is that I also get the maximum profit/hr and can compare that to other items I could be producing and selling in the same buildings (like my electronics - it tells me if I can make faster profit with printers or monitors).

That's a good start, Richbay, but I'm pretty sure (not completely) that both the country population and ratio of supply to demand are also important factors. But if you create a polynomial with every factor you think might possibly be involved, then you can do a regression as kiddbeck points out and not only create a good model, but also see which factors are most important.

Anyone feel like doing the analysis?

I guess the first thing you need is lots of data, then create your linear eqn, then use some software to find the best fit. Then to be complete, probably check for cross-correlation between factors and weed out the redundant ones.

Guest · Post by **Guest** » 16.03.2007, 22:33

Or you can remember it is just a game and have fun!

Guest · Post by **Guest** » 16.03.2007, 23:29

time taken (min 10 mins) =
((your price - average price) * X^2
+ (average qualtity - your quality) * Y
+ (-your advertising) * Z)
* (rack space used/total rack space)

Wow, how did you get it? Seems logical.

It is quite easy to test this equation if we enter 3 different prices and keep all the other variables constantly to get XYZ, then test the coefficients by another price.

But I am so lazy to do it.

Guest · Post by **Guest** » 16.03.2007, 23:48

for convience sake, i just fill the store and sell for the highest price that i can so that it will all be sold in 24 hours, this helps since i also use a 24 hour period in all my production facilities.

Guest · Post by **Guest** » 17.03.2007, 00:23

Lol guys you are thinking way too much about this.

This is how i do it, and cant see any better method:

Produce oil and gas every 24hr. Sell Gas every 12hr. Oil and gas produced at same time, and coincide with the end of the sale of gas.

So i just set production off again for another 24 hr. Go to gas stations fill each with maximum possible (1000 or 7500 respectively) then selected any amount (i dont care what it is) that makes that gas sell out in around 11:55mins. Then i wake up, set the gasstaions again for around 11:55 then when i get home from work the 2nd wave of gas has sold, the oil and gas has been produced and the process starts again.

I think id loose the game due to stress if i thought about it as much as u do

Guest · Post by **Guest** » 17.03.2007, 06:15

Well, I have to say, it is better to know how is the optimum case, but it depends on yourself whether you follow it.

Guest · Post by **Guest** » 17.03.2007, 08:38

Lol guys you are thinking way too much about this.

I agree Tim! In fact, I did my own little formula on this...

15 minutes in Excel spreadsheet * number of production facilities + number of stores / various area markets= X kapidollars in lost profits.

Where X is greater than zero, it's not worth my time to [censored] with!

Guest · Post by **Guest** » 17.03.2007, 09:01

I think we should have encouraged those technical efforts rather than treat it as a "[censored]"

Guest · Post by **Guest** » 17.03.2007, 13:52

Ponyboy wrote: Or you can remember it is just a game and have fun!

Hehe, one thing you forget is that some of us actually consider this kind of number crunching fun! In fact, I think you have to enjoy a little number crunching to even play this game, but some like it more than others. Personally, I like this kind of number crunching, I just don't usually have enough time to follow through with it (between grad school and a baby

).

Which brings me to my second point:

Halee-Burton wrote:15 minutes in Excel spreadsheet * number of production facilities + number of stores / various area markets= X kapidollars in lost profits.

Nice try H-B, but the flaw in your logic assumes that you have to stop production to play with a spreadsheet.

All you need is both the time to set up your production, research, and sales and then play with the numbers and the forums in the meantime.
(Of course, after I say I don't have enough time, I sometimes find myself spending more time on the forums than the game! How about you guys?)

Phoenix Oil, I agree that is a perfectly fine method for playing the game. But performing further analysis can always get you a little extra profit. It's just a matter of how much time your willing to put in. So maybe, the regression we speak of might take a few hours (if you know what your doing) and might increase profits over your method by 10% (just as an example). Basically it would tell you if you would make more profit on your investment by expanding either your production or sales facilities. You can always match your production and sales rates, but some matched rates will give you higher profits than others. Ideally, you would try to match your production rates to fulfill the demand from all your stores selling at the price that gives you a maximum profit rate in each store.

-Tim

Guest · Post by **Guest** » 17.03.2007, 20:39

the flaw in your logic assumes that you have to stop production to play with a spreadsheet.

As has been established, the market fluctuates, and the 'optimal' formula will change each time the market changes. In order to utilize the formula given, you would have to re-calculate before each re-stock in your stores. Otherwise, you are using old data and your formula is not optimal, which is the whole purpose. Now, while your store sits empty, waiting on you to finish crunching numbers in Excel, my store is selling product. The time you are wasting in spreadsheet to make the most money, will actually cost you money in time you could be selling your product.

It has nothing to do with 'production' as this is the same whether you have a spreadsheet or not. We're talking about determining what price to sell your goods in the stores, and whether it is beneficial to micro-analyze the numbers with spreadsheets, or if there is a better way. I certainly wouldn't say the spreadsheet is a bad idea, or that it doesn't produce favorable results, I just see it as time wasted where you could be selling product. Of course, this is just one player's opinion, to each his own.