Strategic Pricing

One of the most difficult problems an enterprise encounters is how to price its goods or services. The price has to be high enough to cover all of its costs and generate overhead coverage and profit. The CFO can assist the organization by making sure that it does not just use cost containment in setting price. By introducing concepts such as Break Even analysis, Fixed and Variable costing analysis we can begin a discussion that will lead to strategic pricing guidelines. I say guidelines because the pricing needs to be flexible to match market conditions that will occur over time.

The CFO will look not just at the present costs but will also use forecasts of future cost changes. This long-term globalized view of the organization is necessary in order to maintain sustainability for the organization. A Controller or cost accountant will generally be more focused on past or present costs since those are what they are charged to focus on.

I am not advocating that the Strategic Pricing decisions be made solely by the CFO, I am advocating that she or he be at the table to allow the organization to have its strongest team making its most important decisions. This team may be led by the CEO/President/Owner but should also have somebody who is fully versed in market conditions for the industry the organization finds itself in.

Strategic Pricing decisions should be model driven so that they can be flexible and the organization can be responsive to the market changes that occur daily. The goal of strategic pricing is not always to obtain the maximum profit available. It is to maximize profits and market share without being so excessive that customers are driven to alternative products or services. Simultaneously, it must generate enough profitability that the organization can continue to refine its products or services to meet the needs of a changing market.

What does this mean to a smaller organization without a CFO or Marketing talent on its payroll? The pool of consultant talent that can fill these gaps is growing daily. Hire one before you price yourself out of business.