Actual Price Increases?

With many industries experiencing a rise in their raw materials due to increases in petroleum prices we are seeing more companies implementing price increases. The price increases, of course, are used to offset the rising raws and at least maintain profit margins.

However, for many companies, their price increases fall well short of the target to maintain margins. In fact, in our experience, we see many companies typically capture only 15-20% of the planned increase. For these firms they fail to maintain profit margins and may not even know it.

There are a number of factors that contribute to these pricing shortfalls including push back from large accounts, poor execution at the sales level, weak communications to the marketplace and a variety of other detractors. But the most common element among these firms is a lack of tracking and measurement tools to monitor actual price increase results.

When we ask managers about their price increase results we often get responses like, "We implemented a 5% increase last year". And when asked about the actual increase realized the response is often a guesstimate. While there are many factors which can detract from a successful price increase initiative the starting point lies in measuring actual results.

Create a system that will provide data to measure results down to the account level. Know exactly which customers accepted the increase and the amount of the increase. Identify which accounts did not accept the increase and why. Only then will you be able to analyze and understand what is really happening and make changes in your next price increase initiative to deliver the results desired.