In the usual 5/1 ratio; the item that sells for $5.00 means it was purchased for $1.00. The $5.00 is broken up….
$1.00 for a new item.
$1.00 in case prices rise.
$1.00 for salaries.
$1.00 for utilities.
Putting it into practice; these chairs cost the business about $20 each. By the 5/1 the chairs should be sold for $100 each.
A few of the chairs have sold, but most are still there 30 days later. The price is now dropped to $90. A few sell. The price is then dropped to $80.
Getting those chairs out of the door is the key feature. The price can drop to $40 and the business would not lose money.
Not losing money, not having dead money is the focus.