September 21, 2016
There are no guarantees in life except death, taxes, and market instability. Well, at least for the modern businessperson. No matter the industry, enterprises feel pressure from external forces like raw material costs, competitors, and economic fluctuations, to name a few.
Industry leaders often react with traditional strategies like cutting costs or downsizing, but these are temporary fixes that lose their value once the market turns again. There needs to be a system in place that ensures profit and margin levels either remain constant or improve during downswings.
Here are a 3 tools to set the foundation for such profit control:
The price waterfall identifies profit opportunities by showcasing each step of the process in determining the final price that reaches your customer. Since each decision has an impact on the final price, it is a good idea to prioritize the overarching strategies you set in place and make further decisions with those goals in mind.
However, be consistent with the waterfall. While these ideas are at the inception of the process, the analysis should be as fluid as the market. Compare waterfalls on a monthly basis to reassess decisions with new market conditions incorporated.
Typically, organizations focus on price, volume, and mix to determine revenue. In the new environment of volatility, this is still useful, but the analyses must go deeper. Adding cost and foreign exchange rates allow you to keep an eye on the market while simultaneously determining pocket margin. With this in place, profitability can be analyzed at the deal level.
You don’t know exactly what is ahead, but you have the data to make a guess. Integrate a warning system that targets KPIs specific to your business. In doing so, you will be able to monitor customer and product behavior to see if any changes are happening that put the customer at risk of defection. If the market has the potential to get worse, it becomes more important to prevent a costly defection.
These tools are essential to setting yourself up for success during market downturns.
To learn more about these tools and 2 more essential tools for establishing profit control, register for “5 Tools for Profit Control During Unstable Market Conditions,” a new webinar on Sept. 27 at 12pm ET hosted by the Professional Pricing Society and featuring experts from Vendavo and Deloitte