If Marginal Revenue (MR) is greater than Margin Cost (MC) sell more, and you do this by reducing price. If Marginal Revenue is less than Marginal Costs, sell less.

The statement above is absolutely true! However, in the "real world, there is much more to the story. Companies will think long and hard before eliminating or restricting sales of an existing product or service without considering all of the consequences. Organizations will spend considerable effort trying to reduce marginal costs. If management can succeed in reducing marginal costs, they can earn more profit, even at current production and/or sales levels. Additionally, organizations continually look for ways to sell more without reducing prices. In other words, price is not the only lever for increasing sales. If you are ever in a meeting with a senior VP of Sales discussing how to increase sales around a given product, a price reduction is typically the last alternative considered, even when MR is greater than MC.

REQUIREMENTS & INSTRUCTIONS

Given the scenario above, what do you believe are the additional levers management has at their disposal to increase sales at current pricing levels? What do you think are the levers that management can use to reduce marginal cost to help MR exceed MC? What initiatives and programs can be put in place?

The matrix below has blank areas under reducing costs and increasing sales. Fill in the blank areas with your additional ideas. I have provided two ideas to start you off. Note: You can download a Word Version of this worksheet in the Canvas Module RESOURCE SECTION IN MOD 5

Initiatives to Reduce Marginal Costs	Initiatives to Sell More Without Reducing Price
Longer-term contracts with raw material suppliers in exchange for lower costs
	Value selling sales training