Two transactions are involved in every business sale: (1) the purchasing of the product by the business owner and (2) the selling of the product to the customer. “Buy low; sell high” addresses both sides of the sales cycle. When you purchase raw materials for good rates and then price the products well, the resulting cost savings and additional income can be maintained through the sales cycle, flowing directly to the bottom line.

When trying to buy low, you must not sacrifice quality in the pursuit of the lowest-priced goods. Remember two other rules of thumb that suggest the importance of buying on credit (when possible) and purchasing in bulk (when appropriate). Using these principles in buying can help you build profits by acquiring goods at a low price.

The admonition to “sell high” doesn’t mean you should try to sell products at outrageous prices. It means being flexible enough to sell the right product at the right price and at the right time. The desire to sell a product must be balanced against two other important objectives: keeping customers happy and making sufficient profits to take care of your family. Sometimes, you will have to sell a product at less than the highest price in order to get a slow-moving item off your shelf or get immediate access to capital for investment in quick-moving inventory. But at other times, you will need to refuse to lower your price for one customer if you are reasonably confident that another customer will be willing to pay a higher price. Flexibility and wisdom should guide all pricing decisions.

Two Practical Examples

Roldan, a fish merchant in Cebu, realized the importance of buying low. He shopped around for good suppliers and was finally able to negotiate a 5 percent discount on purchases from Evan, a fish wholesaler. Roldan now buys at the discount and keeps his selling price the same, even though his costs are lower. Thus, his 5 percent decrease in costs translates into an increase in profits. With the extra profits, Roldan gives himself a small increase in his salary and puts the rest of the increased profit into the business’ savings.

Buying low also works for Barbara, a tutor, who deals with services instead of products. She hires college students to tutor other students in English, math, and science. Although she isn’t buying raw material, she is buying time from the tutors she hires. She has entered into an agreement that she will guarantee each tutor a specific number of hours per week if the tutor will charge her 3 percent less per hour than the tutor’s normal fee. Buying low helps Barbara pay less for her tutors. Again, Barbara hasn’t lowered her prices; she has just lowered her costs. And by doing so, she is seeing more profit in her business.