How to Raise Prices – Part 1

How to Raise Prices – Part 1

John Bohrman

How to Raise Prices in 2018

Raising prices seems like a no-brainer… Higher margins… quick implementation… What could go wrong?  Plenty. Find out how to implement the most powerful profit drivers known to business, without making the mistakes that have sunk so many others.

Should I Raise Prices?

Raising prices is certainly one of the very best things you can do for your company this year. There are not many silver bullets in business, but, when handled correctly, pricing increases come as close as possible to that ideal.

There are several reasons why a price increase in 2018 is critical for your business.

  1. The best defense… Price increases are absolutely essential in an environment where your costs are increasing, which is pretty much all the time, isn’t it? Without minimum price increases that keep pace with your cost increases, your company will suffer inevitable margin erosion.
  1. Margins drive profitability… As an offensive measure, price increases are a powerful way to increase your company’s margins. For those of us in the continuous improvement game, we know how hard it is to improve margins by squeezing cost savings from operations, especially when your processes are already fairly lean.
  1. Everybody’s Doin’ It… Well, maybe not everybody, but a surprising number of your customers will be expecting you to increase your prices each year. Don’t disappoint them! Price increases, when accepted by your customers, are almost too easy.

So, for all the reasons above, when your Board is demanding higher margins, one of the first strategies you should be considering is increasing your prices. And if you have already received a directive to raise your prices, it is critical that you do it the right way.

Not Without Risk

Increasing prices is of course not without risk. There is no free lunch in business as we know. And a lazy man’s price increase can definitely do more harm than good. Thinking about increasing all your items by 5% across the board? Think again.

The most immediate risk involved in a price increase is simply that the customer will not buy at your new price. The last thing we want to do with our price increase is to decrease sales. Your customers may love you, but they’re not interested in paying more for something they can get right down the proverbial street.

The secondary risk is that your customer may still buy today, but unbeknownst to you, he and his colleagues are starting to talk about looking at other suppliers. Loud, angry customers can be scary; quiet, angry customers can be lethal to your business.

This is why increasing prices is such a challenge. Simply said, we want smart price increases, not dumb ones.

Emotional Business

I don’t think there is any denying that there is often an organizational inertia around price increases. Getting a price increase implemented is rewarding, but it’s tough. If you want to get a quick gauge on the emotion that can be involved in price increases, just go to your front-line customer service and sales folks. I’m talking about the folks who are going to be on the phone when your customer calls after seeing that price increase.

Ask those folks what they think of the idea of a nice across the board price increase. I bet you they don’t love it! In fact, you will probably find your folks are pretty worried about it. And that is as it should be.

We once worked with one customer service manager that was very worried about corporate’s decree to increase parts prices by 5%. After avoiding several requests from his boss to get the parts price increase in place, he was finally cornered. He had to produce a plan and proof that he was increasing prices. So he scoured the division’s cost and sales history for several years and found every case he could where his company had lowered costs but maintained selling prices. He reported this up the chain as a price increase! Such are the irrationalities that are involved with this topic.

Our service manager’s reaction might be overboard, but a reasonable amount of worry from your customer service folks makes sense and is appropriate.

Healthy Conflict

In fact, when you really think this through, you see that there are multiple stakeholders in your organization who are involved in the price increase activity, and if you are doing things right, those folks are going to be in a state of healthy conflict.

Your finance folks should be aggressively pursuing price increases. They should be happily modeling your pricing increases and salivating over the positive effects those increases will have on company margins.

The customer service folks, speaking with the voice of the customer, should be pushing back. They should be particularly concerned with those customers who may walk away. They should also be pointing those items they just know customers won’t pay more for.

Your sales management team, properly incentivized with margin as well as volume, should be seeking the sweet spot between the two.

And senior management, God love them, they should be sitting back and enjoying it all, knowing the process is going to optimize profitability for the organization.

Where is Your Commitment?

Out of this healthy conflict, your organization needs to resolve to get this done. You generally need to believe in something to make it happen, and this is no different. If you feel you don’t deserve the same or better margins than last year, or you feel that your products are over-priced already, and that your customers deserve to earn higher profits instead of you, then forget this right now.

But if you refuse to let cost increases erode your margins, if you know you have high-value products that stand up well against your competition, and if you are driven to optimize your company’s profitability, then you need to be increasing your prices this year.

How to Raise Prices – Part 2

The next installment in our series will look at the mechanics of getting your price increase off the ground.

The Analytics Revolution

The Analytics Revolution

John Bohrman

A world in numbers

If you pay even the slightest attention to the world around us today, you have undoubtedly noticed the explosion of interest and activity in the field of analytics.

It is not hard to understand how this analytics revolution has come about. It is common sense that, when tackling a problem, more information is better. And, since Lotus 1-2-3 (look it up, kids) first showed up in 1983, the computer world has offered desktop business users ever greater tools to obtain and manage that information.

Whether it is the world of business, professional sports, even crime prevention, forward-looking professionals are realizing that they can do their jobs better with a mastery of the data that describes their world. While interest and awareness in the field of Analytics is growing rapidly, Analytics is not the next new thing. Analytics is here now, and it is here to stay.

Analytics in action

SAS shown as a leader in business analytics software.
MIT Sloan shown as a leader in analytics for sports.
FBI crime in the US as an example of analytics in crime fighting and prevention.

An educational event for “anyone who is serious about analytics”. This event brings together more than a thousand professionals, industry experts and leading researchers in the field of analytics.

This annual conference promotes the role of analytics in the sports industry. Started in 2007 in a classroom at MIT, last year’s event drew 3,200 attendees from every professional sports organization.

From the FBI, this is the most comprehensive analysis of crime in the nation. This analysis covers almost every type of crime statistic imaginable and is an invaluable resource to law enforcement.

New times, new terms

This awareness of the importance of data has converged with new technologies that make it ever easier (ha! and harder) to collect, analyze, and publish meaningful data. You’ve probably heard the terms… Business Intelligence, Business Analytics, Big Data, the Internet of Things, and so on.

They are all new ways of describing a world where data, and the things we do with it, are having a giant impact on our lives.

Business Intelligence and Business Analytics are two often-used, interwoven concepts that are worth spending just a minute on. They are similar in some ways, but have important differences as well.

ANALYTICS-TERMS TO KNOW

Cloud with terms like business analytics, business intelligence, big data, and others.

Business Intelligence

I had a great boss a number of years ago named Irv Cohen. Irv was the CFO and a driving force behind the increased use of analytics at the company where we were working. One day Irv told a bunch of us the way he thought of business intelligence. He said that information is like telling somebody there is a snake in the room; whereas intelligence tells you which chair it is under, and whether it is poisonous or not. It was a great line and it really captured the essence of what business intelligence is all about.

At Hudson, we define business intelligence simply as information that is both specific and actionable. Knowing there was a snake in the room was neither of these. First, the kind of snake is a pretty important detail in that scenario. The bite of a garter snake is completely harmless; whereas a black mamba’s bite can kill you in twenty minutes. Obviously, the specificity of knowing whether the snake in the room is a garter snake or a black mamba means an awful lot.

So, if we are unfortunate enough to find out there is a black mamba in the room, we do have some knowledge that we did not have before; and we certainly know we probably need to take action. We could fight, or we could run; but we cannot do either very well if we do not know where the snake is. So, the knowledge of which chair the snake is under provides us with the all-important actionable element of intelligence.

Our businesses will always face challenges, but having an intelligence-gathering and processing capability gives us the tools to face these challenges successfully. At the very least, good intelligence provides us the opportunity to formulate plans in response to the challenges we face, and affords the intelligent planner an optimum chance for victory.

Business Analytics

At Hudson, we define business analytics as a set of tools that takes gathered intelligence (not just information, but intelligence) and puts it to use in several important ways. First is the maintenance of good health, or the prevention of problems. Analytics helps in this area by providing indicators, or clues, that the risk of something negative happening has increased. These often take the form of metrics that are designed to be an early warning system for potential problems.

Inventory growth is always a risk for manufacturers and merchandisers. Intelligence as to what is in your inventory today versus a year ago is obtainable, and useful, but if the comparison is showing significant unplanned inventory growth, then that intelligence is arriving too late. An inventory analytics system that includes a metric like projected inventory growth might have foreseen the unplanned growth and provided the company time to take action and prevent it from happening.

In addition to its preventative role, good analytics also has an important role in determining and monitoring corrective actions. They allow us to see patterns and trends that are not obvious to the naked eye. A simple look at our inventory, perhaps the standard inventory-by-product line report, might tell us where the unplanned inventory growth is coming from, but it is not going to tell us why that growth is occurring.

A more robust and disciplined analysis however may uncover trends in places where no person thought to look; perhaps something like a steady stream of purchases of safety stock relative to their current usage. A great analytics team can help you answer the questions that nobody thought to ask.

In the cases above and in countless other scenarios, business intelligence and analytics are used together to help business people make better decisions. Whether it is looking backwards to better understand what happened, or to look forward to better forecast possibilities, business intelligence and analytics are fast becoming recognized as indispensable weapons in any company’s arsenal.

“Adapt or die!”

While some of the world’s largest organizations have made giant investments in the areas of business intelligence and analytics, small to medium size corporations, think those in the $30 million to $700 million level, are just starting. Forbes recently reported that organizations are now increasing their spending on self-service business intelligence and data discovery tools big-time, with some areas seeing incredible growth of over 77%.

Their conclusion: “We must adapt or die!”

In order to take full advantage of the powerful analytics tools that are now available in business areas as diverse as risk analysis, customer targeting, manufacturing efficiency, and marketing or sales operations, businesses are going to need to identify the processes and the resources to develop and manage this new opportunity.

What does it all mean?

All this has serious consequences for the small to medium size corporation. These companies are often too small to make multi-million dollar investments in challenging times, but too engaged in tough competition to risk being left behind. You may not be managing your business with the benefit of the best information tools available to you, but your competitors just might be.

And, as with most new capabilities, it helps to have an experienced and capable team to guide one through the possibilities.

Hudson Business Analytics’ background, talent, and experience makes it a perfect choice to help your organization master this new world.

Hudson can help

Let Hudson Business Analytics show you how we can help you transform your business into an analytics-based, data-driven powerhouse.

Rumor. Legend. Myth.

Rumor. Legend. Myth.

John Bohrman

Do you know the truth about your business processes?

It is often amazing how much successful business executives know about their business. Their dedication and focus on their enterprise’s success is impressive, often awe-inspiring.

And yet, over and over again, we find in our continuous improvement work that there are blind-spots that exist in business’s awareness of how they do what they do; meaningful disconnects between the way people assume things work and the way they really work.

As part of our work, we are often briefed by management teams on how their business processes work. Sometimes the briefs are supplemented by PowerPoint slides with some very nice flow-charts and so on. Then, when we spend time with the folks that are the actual hands-on operators of these same business processes, we find out how things really work.

Nasty effects

Unfortunately, the way things really work do not always support the strategic vision coming from the executive team, and this misalignment can have nasty effects.

Gears showing that business processes matter

Why does this happen? Is there a grand plan to overthrow corporate’s strategic plans? Willful acts of malice to harm the organization? Lazy, slothful behavior by people that just don’t care?

Sometimes maybe; but our experience shows this is not usually the case at all. Usually, what we see is a process we call “unguided evolution”, a phenomenon that happens in almost every organization.

Unguided Evolution – A real-life example

Joe gets hired in 2012 to manage Fulfillment. He is trained thoroughly in his job, given written procedures and some flow-charts, and maybe even a guide from IT on the specific keystrokes he is to follow when using the system. Everything seems a-ok.

In 2014, Bob leaves, Joe gets promoted, and Kathy takes over Joe’s job. Joe explains the job to Kathy and lets her know that a few of the things in the procedures have changed, though the procedures have not been updated. Kathy goes to work and quickly finds that Shipping is not doing things the way the procedure describes, so she has to do a few of her tasks differently.

Down the hall is Ken. For a while now, he has been seeing some strange things when he looks in the system. He talks to Kathy and comes to understand what she is doing differently and why. Ken adapts and goes on.

And on and on. When something finally brings all these unmanaged changes to light, usually something negative in the financials, the situation is finally investigated.

What we find

When we review a scenario like this, we often compare the written procedures (remember them?) to what we find is really going on, and we try to determine where things have gone off track. When we ask folks how they know what to do in such an environment, the answer is almost always a variant of the same expression, “We just know.”

What are the consequences?

A graphic showing that a missed goal from an unplanned process change.

When we compare the new business process to the original, we often find that some unintended consequences have crept into the picture. The most dangerous situations are those where a series of process changes have resulted in a situation where the new processes are no longer in alignment with management’s strategic objectives.

In other words, the new process is not achieving what management truly wants. When we explain all this to the operations-level folks, we often find that nobody has ever told them about strategic objectives, and that they are simply performing tasks and activities in accordance with the way they have been trained. We often find that they have been trained by the person who had the job before they did; or worse, by the person that sat next to the person who had the job before they did.

What are the motivations?

In situations like this, when we dig into the motivations behind each change in this chain of unguided evolution, we typically find that each person involved was confronted with change, and that each person adapted his or her behavior to deal with that change in a way that they thought would best serve the company.  Yes, there was often an element of how-to-keep-my-job-the-way-I-want-it, but there was almost always a belief that the changes that were adopted served the company’s interests.

It’s Evolution, Baby

And why aren’t these changes communicated upward? Why isn’t anybody checking with senior management to see if all this is ok? The simple answer is that these types of changes tend to be evolutionary versus revolutionary. They happen slowly, little by little, piece by piece; no single change ever seeming very consequential in itself.

Dripping Stalactities symbolize business processes changing slowly over time.

However, as in the natural world, where tiny drops of water can slowly take down a mountain, these unguided series of changes in your business processes can unravel parts of your organization’s strategic plans. And, by the time these effects show up in your financial statements, a lot of damage can be done.

What can be done

Every business needs to give its processes the proper level of attention in order to ensure that the business is continually improving. This is at the heart of the continuous improvement focus all smart companies are maintaining today.

While it is tempting to try these efforts in-house, it makes a lot of sense to turn to experts when it comes to your key continuous improvement projects. With its highly experienced team, and its strong background in Lean Sigma, Kaizen, and other proven continuous improvement methodologies, Hudson Business Analytics has the right people and the right methods to help you get the job done.

Hudson can help

Let Hudson Business Analytics show you how we can help you successfully implement your next continuous improvement project.

You Want What? When??

You Want What? When??

John Bohrman

Help? Who needs help?

As a young professional, I was always skeptical when my company hired consultants. I always felt that they weren’t really part of the team, that they couldn’t possibly care about things the way we did. And, behind it all was my young man’s belief that I could get anything done, lift any load, climb any mountain.

“Not my job”

Over time, with greater work-loads, and broader responsibilities, I came to see a few things that led me to think a little differently. First, I saw that not all the young professionals working under me had the same willingness I did to regularly take on twice as much work as could be reasonably expected. Worse yet, some of these people actually said things like “that’s not my job”.

Help from outside

One of the first times I used an outside consultant was on a project related to the implementation of a new cost system. I was the Controller and, early in the project, I determined that the company’s chart of accounts was just plain unsuitable for what we needed to do. So, we needed a new chart of accounts. Fast.

Help in sand showing companies need help from consultants.

I had a great accounting staff, but they were AR & AP clerks, and a few general accountants, and their plates were more than full already. I was stuck. I knew exactly what I wanted done, but we just did not have the resources to do it. I had used temps for plenty of assignments before, but this was too important to take chances on a failure.

We hired an outside consultant with a strong background in cost accounting, an ability to focus, and a will to work. I provided him with very specific instructions on what we wanted done and how. Long story short, it was a great experience and it changed my view on working with outside consultants.

The right consultant

Since then, I have worked with outside consultants many times on all kinds of projects. While I have come to agree, enthusiastically in some cases, that the concept is sound, I have also seen that it is crucial that you get the right people for your projects. There are a lot of consultants out there, and many are very good. And many are not. There is no reason to settle for folks who are not really qualified for the job that you need completed.

The Day-Job

Stack of documents showing companies need consultants for help.

Today we see so many companies with forward-looking executive teams who know what they want to do, but are constrained by the lack of available manpower to get the job done. It is not that they do not have good people either.

The thing is, most companies are running very lean already, and most of the more talented folks at any given company have day-jobs that are already extremely challenging. Sometimes they just do not have the bandwidth to also focus on the continuous improvement or other special projects that senior management wants completed.

This is where the right outside resource can be a critical partner for your company. With a specialized skill-set that matches your requirements, and, perhaps most importantly, an ability to focus on the project you want completed, they can come in, get the job done, and get back out.

What about cost?

When it comes to cost, it certainly makes sense to work with people who will get the job done and done right. I have found that you can throw temps at a problem for months and get next to nowhere, while a highly qualified expert can help your company achieve its goals quickly. If your project is worth doing, it is worth doing right. If it is a worthy project, your return on investment will only be enhanced by using the best talent available.

Look at it this way, if you find the right consultant for a very important project, it is like making a great executive level hire; something that is always a challenge. However, with the consultant, you can un-hire him or her the moment your requirements change. No severance packages, no new org charts, no drama.

That being said, most mid-size businesses are not likely to be able to hire the McKinseys of the world. Fortunately, there are excellent consulting firms that specialize in this small to mid-size market. The key to choosing the right consulting group is to ensure that their capabilities align with what you want.

Generalist or Specialist?

Some consulting groups claim to do it all. Whether it is installing your next ERP system or revamping your purchasing practices, these folks do everything. We think it is probably a better idea to work with a consulting group that focuses on a few areas, and does them really well.

Experience and hands-on know-how are extremely valuable when it comes to the selection of a consulting firm. More than anything, you want someone who can hit the ground running and make an impact quickly.

At Hudson, we really only want to be involved in those areas where we excel. More than anything else, we want successful projects for our clients. We are not good at everything, but we think we are pretty great at what we do. We focus primarily on two areas: Business Analytics and Continuous Improvement projects.

One of our unique strengths is our background in both finance and operations. This allows us to fuse our business analytics and continuous improvement capabilities into a package of product and service offerings that most other small consulting firms cannot match.

Hudson can help

Let Hudson Business Analytics show you some of the exciting business analytics and continuous improvement projects with which we have had the good fortune to be involved. Learn more about the ways Hudson Business Analytics can help you improve your business.