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Chart the percentage of your products that have had a price increase during the current year. This seems tedious and burdensome, but it is simple to do, vital for the business and more importantly, absolutely necessary if you value your own annual salary increase. Without price increases, there is no additional money for you once per year.
Once you have determined what number of products sold were given a price hike during the current fiscal or calendar year, you will be able to determine the next steps. Were they enough? Were some not high enough? Were some price increases missed and now these products are generating substandard net profits? What were those price increases relevant to material increases in the marketplace? If your sales force is not passing through cost increases experienced by your purchasing department, your bottom line slowly diminishes. Your buyers need to talk to your sellers.
Measure price increases consistently and see if the value you determine is nearing100% by year end. It most likely will not ever hit 100%, but that is not the most important issue. What is important is to do it and do not delay. Raising prices to cover rising labor and material costs is necessary and hard to get some to do. You may have to pressure and incentivize them to get it done.
How is this measured? You need to analyze current versus old prices (averages if necessary).
- New quantity times old price. Take the new order for 100 parts which were previously priced at $1.00 each ($100.00 total value).
- New quantity times new price. Extend the order at the new price of $1.09 ($109.00 total value).
- Have all new orders summarized on a report that can be printed from your system. Add up all of the new prices with the new quantities and divide them by the old prices times the new quantities and calculate the % difference of the two columns.
Example:
(($109.00/$100.00)-1.00) x 100% = 9.0% Average Price Increase
Compare your price increase to your cost increase for the company in total. Remember to compare your overall weighted average price increase to the actual price increases that occurred during the year. Look at annual salary increases and go to purchasing to see what impact material price increases had on the overall cost of business.
