October 27, 2016
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 reduces 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.