The best way to predict the future is to invent it! In these tough economic times, business owners need to look at their financial strategy to address the profit structure of the company. The question a company needs to answer is how to pull off the desired growth that the new financial strategies can bring to a growing business.
To understand the natural interdependencies and logic behind the financial model and market dynamics, creative businesses need to start the building blocks at the inception (if not possible at least the beginning of the fiscal year) to drive profit from their goods/services.
Fashion Designer and fashion retail based businesses often become pre-occupied with the product innovations and unique offerings they have for customers, especially in a single owner business where all the logistics are decided by one person who usually gets a crash course in the pricing/POS system/accounting/supply chain part of their company.
The goal is for the business owner to develop a Profit Strategy and Innovative Tool Kit that can crunch numbers while they are in the studio creating new designs or off on buying trips to stock their sales floor.
Construct a “Road Map” laying out how to realize the Profit Margins by offering various pricing strategies from Regular Pricing, Sale Pricing, Volume Pricing etc. Things to include in your Pricing Model:
• Gross Margin Requirements
• Unit Pricing
• Unit Margin
• Time to Break Even (especially important when buying multiple goods seasonally)
• Net Present Value
• Credit Items
• Discounts/Sale
• Buybacks
• Unit Pricing
• Unit Margin
• Time to Break Even (especially important when buying multiple goods seasonally)
• Net Present Value
• Credit Items
• Discounts/Sale
• Buybacks
Note: During the Economic down-turn the “Slash and Burn response is often a mistake because the short-term operational issues often over-shadow the long-term strategies that still need to be taken into account. Look at the problems Saks Fifth Avenue is now facing after slashing their prices during the holiday season. Consumers are now expecting those low prices and are turning their noses at any slighter markdown.
Creating a “What If” Analysis feature into your Pricing Model is the only way to help your business gain a profit in shaky times as it predicts the impact of a price change and its effect on product profitability which in turn shows the effects on the bottom line.
In this example, the products will need to be assigned on the SKU Level and rolled-up to the defined level (If you are offering different prices or deals on your on-line site vs. store front or regional deals in terms of product offerings these things need to be predicted and figured in from the beginning.
For Example: What if we change the price of the Men’s Shirts solely in the Web-Based Entity. Profits will be higher if sold at a certain volume in the Web-business part of the corporation.
With predictions of future market needs and understanding of the bottom line, a business can have infinite success. The right pricing model is the first step in achieving longevity and growth.
Stephen Furge is the President and Partner of Furkon Software. He is available for questions or consultations on any pricing model specifics by contacting sfurge@furkonsoft.com
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