What do you think about this idea?

[Doug B]

LOML and I were brainstorming tonight and came up with what we think might be a good marketing strategy. But we are very new to this business of selling crafts for profit, so we may be way off base.

We finally decided to look into the local Farmers and Crafts market here in town. It is a PITA to get started here...we had to attend an orientation meeting today and there were a lot of things we had to provide, including a Tax ID number. In order to sell at the Farmers and Crafts market, you have to pay the local tax rate, regardless of what the rate is where you work or live.

So, now to the question about the idea we came up with. We really do not want to have to make change so we have priced everything in even increments of $5.00. That way we do not have to have coins or dollar bills on hand for making change. But, taxes are a real cost, and at close to 7.5% it is a pretty good chunk of our profits that are going to be taken up in taxes, so we were trying to figure out if it was worth it for us to just pay the taxes out of our profits or try to recoup it from the customers. (The actual tax rate is 7.4375 %)

Well, the idea occurred to us that it would be worthwhile for us to pay the taxes out of our profits if someone pays in cash just so that we don't have to make change. If someone pays with a check, then it does not matter to us what the amount is, so we can charge the customer the taxes and not have to take it out of our profits. Makes sense, right?

Now for the bright idea...I thought, why not market this as a discount of 7.4375% for cash payment? And put up a sign to that effect. 7.4375% discount for Cash Payment.

What do you think...is this a clever marketing ploy that people will appreciate, or is this something that some customers will be pissed about. I know I like to pay cash for things, but I think that most folks do not carry cash anymore.

Thanks for your input.

[Ruffnek]

Personally, it seems like more trouble than it is likely worth.

I just price my goods to include the sales tax, keeping the price at a round number so that I don't have to deal with change...ie, an item that I want $50 for, with 7.5% sales tax = $53.75 is marked $55. I actually end up getting $50.87 for the item.

I don't know if the 7.4375% cash discount would entice customers to buy or simply confuse them.

[Doug B]

Confusing the customer is part of the idea Cody. Something to get their curiosity up about.

The question is how they will react to it. I know that for me personally, I would get a kick out of it and would gladly pay cash. But I know I'm not a good indicator for what normal folks would think about it.

[CajunRider]

That tactic works very well. An acquantance of mine told me that his hardware store sale for "No sale tax" always works much better than the "10% off" even though the sale tax is only 9%. People hate taxes so if you put up the sign that says "We pay your sale tax if you pay in cash", that would work well I think.

[Doug B]

It's funny how that works isn't it? I see 10% off and think "Ho Hum...no big deal" But pay my tax for me...he!! yea!

Thanks Caj!

[monty]

A 7.4375% discount is not the same amount as the tax. Let's say it's 7.5% just to make this a little more simple. If your item is $10, the tax is $0.75. However 7.5% off $10 is $9.25 and the tax on $9.25 would be $0.69 making the total $9.94 and you would then have to give them $0.06 change.

[TDHofstetter]

If you get audited... the government is very likely to regard your tag price (which you figured to INCLUDE tax) as the pre-tax price and demand that you pay tax on THAT amount, leading to a bunch more calculations & possibly a back-tax bill.

It's a lot easier to add the tax at sale time, make change, & be done with it. Makes bookkeeping straightforward.

[kvwebb]

Doug,

A lot of folks consider writing a check the same as paying cash.

Kreg

[Doug B]

Nov 20, 2009 6:51:52 GMT -6 monty said:

A 7.4375% discount is not the same amount as the tax. Let's say it's 7.5% just to make this a little more simple. If your item is $10, the tax is $0.75. However 7.5% off $10 is $9.25 and the tax on $9.25 would be $0.69 making the total $9.94 and you would then have to give them $0.06 change.

You see, I'm a glass half full kinda guy...so, I see that as an opportunity to give them some advice three times. Just my 2 cents each time ;D

[Doug B]

Nov 20, 2009 9:50:38 GMT -6 TDHofstetter said:

If you get audited... the government is very likely to regard your tag price (which you figured to INCLUDE tax) as the pre-tax price and demand that you pay tax on THAT amount, leading to a bunch more calculations & possibly a back-tax bill.

It's a lot easier to add the tax at sale time, make change, & be done with it. Makes bookkeeping straightforward.

I am trying to think whether any of the vendors at the Market charge tax. I can't think of any off hand, but I'm definitely going to look into this a bit more.

I think the easiest thing to do is to keep the prices easy to deal with and just pay the taxes out of my profits. I think that is what most vendors are doing. Since the market is basically a half day, once a week, it is probably not worth the time and effort to make change.

And food items are not taxed, unless there is a service provided. The example they gave at the meeting yesterday is that if you sell a watermelon there is no tax on it. If you cut the watermelon up and sell it, then you have to pay taxes on it. So, the real farmers do not have to worry about the taxes.

[Doug B]

Nov 20, 2009 10:41:22 GMT -6 kvwebb said:

Doug,

A lot of folks consider writing a check the same as paying cash.

Kreg

What is the world coming to?!?! ;D

[sawduster]

I think that it would lead to problems with non-cash paying customers thinking they're getting ripped off as well as concern that you might not be claiming the real totals on your cash sales in respect to paying sales tax.

When we used to sell Christmas Trees, we actually bought cash registers for each of out lots so that we could keep accurate accounting of the tax collected. If you have a tax permit, you need to keep track somehow of how much tax you collect during the day, not depend on counting up your total take for the day and calculating back to how much tax you owe.

Of course there were always some folks who would complain that we added the tax onto the price marked on the tree tags claiming that they thought that the price included the sales tax. We'd just ask them how things were marked in WallyWorld or what ever and if those prices included sales tax.

[fredbelknap]

I think the right thing to do is charge the tax, make the change, keep records.

[Doug B]

Thanks for the input Jerry and Fred. I will be deciding tomorrow, as that will be our first day at the Farmers and Crafts market.

Today I talked to a guy I know that has been doing the market for a couple of years and he said he just includes the taxes in his price. I have a feeling that is what most of the vendors do, and probably what I will do as well.

I'll let you all know how it goes.

[Ruffnek]

When Boodrow and I did that craft show at Cyfair in Houston last year, it was understood that all marked prices included the sales tax. That was a condition of the show.

[Doug B]

Thanks Cody. All the craft shows I've been to, that was the way it was. But it seems like the city sponsored Farmers and Crafts market here is a little bit different. This was the first time I had to provide a Tax ID number.

[Doug B]

Well, I did not have much chance to test out my idea today...only 2 sales, one cash and the other check.

Once again there were a lot of people looking and admiring my pens, but not many actually buying. Several people said they would be checking back with me before Christmas.

I sure seem to be on a roller coaster with these things. About half are good, and half are very mediocre.

On the bright side, the next one should be a good one

[CajunRider]

Nov 21, 2009 19:43:58 GMT -6 Doug B said:

Well, I did not have much chance to test out my idea today...only 2 sales, one cash and the other check.

Once again there were a lot of people looking and admiring my pens, but not many actually buying. Several people said they would be checking back with me before Christmas.

I sure seem to be on a roller coaster with these things. About half are good, and half are very mediocre.

On the bright side, the next one should be a good one

Be careful with the check sales. I got tons of bad checks from supposedly reputable people when I had my own business.

[Joe Lyddon]

Yep, "NO CHECKS"...

Possibly lose a small percentage & take Credit Cards, Paypal, U.S. Postal Money orders, Certified Checks, or CASH instead!

[monty]

I've been taking check for the past 5 years at show and can count on one hand the number of "bad" checks I received. All were made good upon calling the person that gave me the check and it was a check book accounting error on their part.