Tag Archive: costs

Pricing & Profits: It’s Not All About Revenue

May 26th, 2019

According to CFO Magazine, Amazon’s profit doubled to a record $3.6 billion in the first quarter yet reported its lowest growth rate in quarterly revenue since 2015. In today’s Amazonian environment, subscription services such as Amazon cloud and Kindle services as well as disruptive forces such as the 3rd party seller services (clients worry about from the opposite viewpoint) are driving profitable growth for a company that once lost money continuously. Are you considering ways to ensure your pricing makes sense and delivers the results you intend?

 

It’s Not All About Revenue
Ask questions of your sales representatives, customers, marketing department, executives and competitors about pricing:

  • When is the last time you raised prices? Why are they at the level they are set?
  • Who sets your prices? Think carefully as this could lead to some interesting discussions.
  • Do you know how your prices compare to your costs? There are lots of reasons NOT to set prices this way but knowing this relationship is relevant.
  • How does your pricing stack up with the competition? Again, high or low is irrelevant but considering your strategy is key.
  • Since it has come up frequently lately, I’ll also throw in this one: Is your pricing so complex that your ERP system won’t support it? That would certainly be something to re-evaluate.

Pricing is an important topic, assuming you are interested in profitable growth. It is worth taking the time to ask a few key questions of your internal and external resources. Gather your executive team and put some focus on whether what you are doing makes sense and supports your strategy or if it is out of date. With the pace of change at an all-time high, reviewing this topic once every few years is by NO MEANS enough. If you’d like an expert to assess your situation to partner with you to achieve these types of results, contact us.

 

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Strategic Pricing

October 31st, 2016

supply chain

I’ve been working with a new client recently on digging into costs; however, we aren’t taking the traditional cost-cutting approach. Of course, the more efficient and less costs required to run a manufacturing operation, the better, assuming customer service, cash and other metrics remain intact. However, if you take the big picture, cross-functional view of costs and process improvements, you are bound to find opportunities.

In this case, if we can find opportunities, we can go from being a small player in a new market with significant potential to being a going concern. If we are losing deals because of pricing, there might be an opportunity to think differently and design a new formula for success. Lower prices across-the-board is rarely better. Instead, think strategically about pricing.

For example, we followed a strategic pricing strategy when I was a VP of Operations for a mid-market manufacturer. In that case, we knew that if we covered variable costs and strategically priced while considering the break-even point and contribution margin, we could cover key costs, grow the business and increase profitability. We followed the plan and results followed. If we had kept going down the current path, we would never have sold the business for a significant profit because results would have been “too slow”. In today’s Amazon-paced world, you can miss your opportunity in a blink of an eye.

One tip to implement this week:

For this week, depending on your position and expertise on pricing, my suggestion is to learn about pricing. How significant a variation does your company provide in pricing? Why? Are there certain volumes, combinations of items or special circumstances that reduce costs so that you can pass on some of the savings to your customers? Do you know what market pricing dictates

If you are already on top of pricing, take a step back and think about pricing from a strategic standpoint. How important is pricing as a reason your customers buy from you instead of the competition? What is most important to them? Are there certain customers or products where an increased level of sales would make your company more attractive to investors, customers and other stakeholders? What are your trade-off’s with profitability? Have you thought about pricing differently based on ABC customers and/or products? Gather your team and discuss. Golden nuggets might just arise.

Looking for more ideas to keep your supply chain connected? Access more tips and resources on my blog. And keep connected by subscribing to my newsletter and email feed of “I’ve Been Thinking…”