Part 2 - Moving Forward - Pricing and Risk

Part 2 – Moving Forward – Pricing and Risk

- Chris Sizemore

Date :- July 23, 2021

Prices are going up. Inflation is increasing. Supply chain costs are rising. Payroll is higher. In the first installment of this series, I highlighted global issues that are forcing business owners to restructure more than their work from home policy. Leaders need to examine their pricing models to determine how they will absorb the fluctuations in areas like the labor market and supply chain delays. Now we are going to look at the “how” of price modeling. Where do you start when so many factors are in play like never before? Build a new business continuity plan. If you didn’t have one before, that actually works in your favor. Leave old practices and mindsets in 2020; you have learned so much since then about your business and your clients.

Read the Room

If your market hasn’t changed or you feel you are in a market that isn’t going to change, it might be good to double-check that. Look around at things you wouldn’t have thought would experience disruption and reexamine them.

Businesses that didn’t rapidly “pivot” in March 2020 spent the next 14 months trying to keep up. Those businesses either went out of business or started to charge more or were big enough they suffered through it, but it hurt them badly. That said, some grew from the pandemic. Who knew that more recreational vehicles and boats have been sold in the past year than ever before? Cleaning service providers were off the charts with new clients and increasing regularity. Equally, those growth changes may not hold in the long term, and fast growth negatively impacts businesses. Those businesses that created a strategy for price modeling to adapt to this rapid expansion, and stuck with it, have probably had significantly more stability than those who didn’t take the time to examine their market as a whole.

Use the Change to Your Advantage

How many of us have looked up the trade-in value on our cars just to see how much more valuable they are today than one year ago? Look at your current assets and identifying spaces where the “new normal” might be a win for your bottom line. If you are leasing vehicles in your business, or at home, remember those leases were calculated on a couple of factors: a diminished value of the asset to include market value and mileage that would accrue on the vehicle. Now some used cars are selling for over MSRP even though they are used. What was supposed to be a diminishing asset on your book has turned into an appreciating asset. You might not want to go turn in those leases but instead, sell the vehicles and payoff the balloon, or keep them and refinance the balloon because you can’t find vehicles right now.

Your business needs to identify all the expenses, both fixed and variable, that it takes to produce what you sell, whether it is a product or service. Be sure to incorporate the added risk to account properly for the cost, so you can then put the profit margin on top of the new price to ensure long-term sustainability. Business continuity is suddenly a much more significant element in our daily business lives. Price modeling today is critical. Are leaders doing it? Maybe.

Contact me at georgefassett@mebuis.com and I will not only create a business continuity plan, risk and pricing models, but also work with your team on execution and adoption. Mebuis was created to allow companies to stay on target through the use of exceptional fractional talent. Or Click Here to fill out a Contact Form

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