The Rea Report | Fall 2021 | Page 10

Implementing enterprise resource planning systems can streamline the process

When Did You Last Update Your Costing / Pricing Models ?

Implementing enterprise resource planning systems can streamline the process
With so many variables to consider , establishing a pricing strategy for your business might seem like a monumental task . Even so , effective costing and pricing models are essential if you ’ re looking to maximize profits and maintain your competitive edge in the marketplace .
IT IS IMPERATIVE THAT BUSINESSES MONITOR WHAT THEIR COSTS ARE DOING SO PRICING CAN BE ACCU- RATELY AND TIMELY UPDATED TO REFLECT ANY CHANGES THAT TAKE PLACE AND ENSURE REQUIRED MARGINS ARE MAINTAINED .”
- ANDREW GEISER , CPA
The Power Of Pricing
During an average year , your costs might not see a drastic shift . However , longterm neglect of your costing and pricing strategy means small changes will compound over time . Then there are sudden or unexpected changes to consider . Unique events ( like a global pandemic , for example ) can completely shake up the market and failing to act fast can have consequences on the sustainability of your business . Fortunately , there are steps you can take to protect your business from short- and long-term surprises .
Expect The Unexpected
Conducting regular costing reviews will help you get ahead of and prepare for unexpected roadblocks . Pricing models and assumptions should be updated , at minimum , once a year . Out-of-date cost models can have a severe impact on your bottom line .
It ’ s especially crucial to know how you stack up against the competition when the market is volatile . The best place to start is to determine your price elasticity – or how the demand for a particular product is positively or negatively influenced by a price change over a period of time . Consumer- or industry-specific trends , government regulations , and demand are just a few areas that result in drastic effects on pricing and market standards .
We ’ ve all seen that pandemic-related shortages and supply-chain disruptions have accelerated the need for businesses to reevaluate their pricing models . Fortunately , not all market changes will have this kind of negative impact on your business . In fact , some market changes uncover opportunities to foster growth and greater efficiency .
Let ’ s say you own a business and your pricing strategy reflects an economybased pricing model whereby you