“Our main input cost has tripled. How much do we pass on to customers, where and when, and how much do we absorb?”

Every price list and customer contract was set when the input cost a third of what it costs now. Nobody is asking whether to raise prices. The questions are how much of the increase to pass on, to which customers and categories, in what order, what it will cost in lost volume, and how much the business can carry itself. And the answers are needed before the next customer negotiation.

What usually goes wrong

• One flat increase goes on every product, because that is all anyone can calculate in time, and it hits hardest the categories that can least take it
• The volume you expect to lose is guessed once in a meeting and never checked against what actually happened
• Rebates and off-invoice terms are forgotten, so part of a list-price increase is handed back before it reaches net sales
• Increases are agreed customer by customer by email, so afterwards nobody has a list of which went in, when, and what each was expected to bring
• There is no agreed plan to fall back on when the largest customer pushes back, so the first negotiation sets the terms for everyone

It suits any company that buys an input whose price can jump and sells at prices it sets: manufacturers, brand owners, and distributors or retailers facing a supplier's increase. The answer brings together your product costs, your sales and deductions, and your pricing and promotion plans.

How the software answers it

1. See what the input does to each product. What the input costs now against your standard, which products carry the most of it, and what each category and customer earns after every deduction.
2. Test the options before you choose. Price elasticity is estimated for each product from its own sales history, so you can see how much volume each price level is likely to cost. Sliders on volume and on each cost show how margin moves, and the software works out the price change that would hold profit at your target.
3. Record every price action. Each price increase, rebate change or change to trade terms is entered once, with an owner, an approval and its expected effect on net sales and margin, so there is one list of what was agreed, with whom and when.
4. Check what happened. Once the increases are in: what reached net sales, customer by customer; how much of a list-price change reached the shelf, from your store checks; and the price-pack ladder, showing any place where a bigger pack now costs more per kilo than a smaller one.

The figure that decides it is what reaches net sales. A list-price increase that goes back to the customer as a bigger rebate has recovered nothing, so every increase is followed through to net, and the next price round starts from what actually reached net sales.

What we build for it

Examples from software we have already built:

• The input's cost by product and its share of each unit cost, against standard, month by month
• Margin by category, customer and product after every deduction
• Price elasticity and promotion lift for each product, estimated from its sales history
• The price change that reaches a target profit, and which assumption moves profit most if it turns out wrong
• A register of price moves, rebate changes and trade-term changes, each with an owner, an approval and its expected effect
• The expected loss of volume entered on the demand plan with its reason, so it can be checked later
• Price compliance after the change, customer by customer and market by market
• The price-pack ladder, and every place a bigger pack costs more per kilo than a smaller one

All the sample screens →

Screens

Where to start

It starts with a paid pilot on one category, then a build at a fixed fee that covers as much of the above as you need, and an annual subscription.

Prices →How an engagement runs →

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What changed against last year, and where did the growth and the drag come from? — Illustrative data.