How to Effectively Manage Unpredictable Cost Changes

Unexpected or unpredictable changes in cost affect the overall margin of the product or service you provide. There are a few things you can do now to mitigate risk and take your dynamic pricing strategy to the next level.

What is Cost Change Management and Why is it so Important?

Cost change management is the monitoring and governing of the cost of raw materials or parts from a supplier that have a direct impact on the price to an end customer. Some factors that impact cost are:

  • Changes in underlying commodities
  • Volatile and unstable markets
  • Changing energy costs
  • Unexpected fluctuations in component costs

Costs are one of many inputs to your value-pricing strategy and unexpected or unpredictable changes in cost affect the overall margin of the product or service you provide. By not effectively managing cost changes or passing them through pricing, it becomes increasingly difficult to make up the lost dollars.

Unpredictable cost and price fluctuation erode margin

What you can do now:

  • Capture real-time cost data from suppliers to understand recent costs and trends, and establish a process for routinely reviewing costs at the vendor / item level.
  • Dig into customer-level profitability to identify and address potential profit leaks due to cost and opportunities to drive profit improvement without a price increase. e.g., long-term agreements, rebates, promotions, unearned discounts, excessive exceptions & concessions, other policies, and fees.
  • Develop a customer communication plan and coach sales on better habits and policies. e.g., customer letters, email blasts, follow-up communications, sales talking points, FAQs, customer-specific impact reports, etc.
  • Measure, measure, measure! Set up a measurement structure and cadence that ensures visibility to cost and price change impact over time that drives data-driven decisions.
  • Generate differentiated pricing recommendations for both standard and quoted products or services based on seen cost changes that maintain positive margin alignment across customers beyond just a one-time price management initiative.

Cadence-adjusted price recommendation mitigate risk

Monitoring and managing cost changes is only one step in the dynamic pricing journey. Unsure what to do next? Contact Us to learn how to drive continuous impact in your business through implementing custom pricing and profit solutions that incorporate cost changes over time.

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