Power Is In The Numbers - If We Pay Attention to it!

COVID-19 was unprecedented and destroyed many lives and businesses. This was also a stress test to the world infrastructure that exposed holes in our processes, which in some cases though working were taken for granted.

How often does management do stress testing of their processes? How many times do we actually revisit our processes and procedures on an annual basis? If it’s working, do not try to change, we say. Those business owners who went to a couple of recessions understand that a significant portion of business management is Risk Mitigation.

Rule #1: never lose money. Rule #2: don't forget rule #1. Most of us have heard Warren Buffett's saying plenty of times. How many of us have been proactive in doing so?

With supply chain under pressure and many input costs across industries going up, manufacturers and retailers have to pass pricing increases along to customers in order to survive and perform.

There are many variations of pricing strategies based on the specificity of the industry and consumer type.

The base ones are as follows:

COST PLUS - The easiest and used by brokers and distributors and as well as commodity type product manufacturers.

VALUE BASED – This one reserved for products and services in the premium categories. Think Oatly or Beyond Meat.

COMPETITIVE PRICING – This one might be sought more as a derivative of the two above. Competition and your consumer would most of the time dictate the minimum and maximum pricing you can use. This is why product design is so important as it can help to build a necessary margin to stay competitive.

As much as I’d like to expand on the pricing strategies, and I will in the near future. I’m diverging from the main subject of the post – “Power Is in The Numbers” – if we pay attention to it!

Running monthly reporting on pricing used and underlying costs at the SKU level can help you determine if there are any issues, i.e. product is sold at or under cost, or preferential pricing provided without approval, etc.

Believe it or not, this also can expose input costs increases that we somehow forgotten to build in the budget. I’m guilty of that, too… Forgotten may not the right word here. Didn’t inquire for the 5th time the same year or our supply chain guys noted it once at a meeting and that was it… it slipped through the proverbial cracks in the ground and bit us in the butt 3 months later as we saw some kind of Direct Material variance appear on the Income Statement.

Analyst at heart, I always relay this message to every portfolio company or a consulting project I’m on – to make sure the system and processes capture and report the data. In today’s digital age, it is shameful not to do that. It is even more shameful to have access to this data and not use it.

Folks, invest in resources to update your ERP or hire a fractional CFO to help you stress test your processes and make sure your business is protected. Power is in the numbers, and results are in the action!

-A.G.