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This sounds odd but it is very simple. Whatever the total number of active jobs or projects or products you are selling, count how many have had a price increase during the current fiscal or calendar year. Watch this number because if your sales force is not passing through cost increases, your bottom line slowly diminishes.
How long can a company exist without raising prices? A company will not go far without raising prices; employees won’t get annual salary increases, cash will slowly become tight, the line of credit will max out and the bottom line will disappear. Companies must cut costs or raise prices. Sometimes cutting costs is not feasible and costs rise quickly. This is the main reason price increases need to be monitored. Watch this percentage because it should be rising all year and should approach 100% by year end, at least theoretically. Most will rise, a few will drop when customers force their hand, but the overall average will increase and that increase needs to be measured.
How to measure your percentage of products that had an annual price increase is this measured?
- 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: (New price/ old price) -1) X 100% = X% Average Price Increase OR ($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.
