There are a million reasons to raise prices right now. Inflation. Labor shortages. Taxes. The ongoing effects of the pandemic. War. Global supply chain issues.
On the surface, it may seem justified: We won’t survive if we don’t raise our prices.
Looking deeper, there is reason not to: You won‘t survive if you lose your customers.
Raising prices risks permanently damaging your relationships and overall business. Doing so also opens the door for your retail buyers and customers to look elsewhere for similar products or question the need for your products all-together. This is particularly true if you’re a small-to-medium sized supplier to some of the world’s largest retailers.
This is a dilemma nearly all business leaders are facing today, with many believing they have no choice but to pass on the increases or put their entire business at risk.
What if I told you it does not need to be one or the other? What if you could not only save, but grow your business without passing on cost increases to your customers?
You can ensure that major retail partners keep coming back to you for more business while at the same time, cutting out vendors several times your size. You can maintain high levels of quality without passing along price increases. You can become stronger and more poised for growth through inflationary periods and down economies.
I know it is possible because I’ve helped lead my own companies through it and helped other businesses navigate it, many times over the past twenty years. You can do the same.
This four-part series, “P&L Survival Guide,” has a clear theme: Control the controllables and get your business in shape. Obvious in theory; difficult in practice. You can’t control inflation, pandemics, labor shortages, taxes, war, or global supply chain issues. So what can you control?
For starters, you can control your revenue. It is the first critical step to getting your P&L in shape. Here’s how.
Become a sell-out.
I don’t mean lower your standards, predatory price or sell your soul. Instead, hyper-focus on increasing revenue, through sales. The companies that will be best equipped to not only make it through the next few years, but also have the highest potential for exponential growth will be the sell-outs.
It won’t be easy. Selling-out will likely require changes in your company culture and potentially, your overall business model. It will demand proactivity and personal accountability across the organization to discover and implement new and different pathways to revenue.
Here are five ways you can improve top line revenue without raising prices:
- Ship current orders in full – The easiest sale is the one you already have
- Expand existing assortments – Develop new products for existing customers
- Create new business – Identify new customers, services and income streams
- Go direct – Increase margin and consumer engagement
- Review terms – Renegotiate freight, rebates, and program terms
Ship current orders in full. Recently, many businesses are having challenges shipping their orders on time and in full. If you are short-shipping items from purchase orders, focus first on solving the issues causing you to short ship, late ship or cancel orders. You are almost certainly experiencing chargebacks, fines and lost sales as a result. Fix it. Repair the instocks, fill rates and lost sales. Think about it – you already have the sale. Make sure to capture all of it.
Expand existing assortments. Instead of passing on cost increases to current customers, what if you were able to get them to add more of your items instead? What are some additional SKUs you could add to your assortment? Could you create a new bundle with existing and new SKUs, especially if some of the new items have better profit margins? The increase in revenue could offset much – or all – of the margin loss from the cost increase you had to inherit on your legacy items. Think of ways you could increase your footprint, value and impact with your customers.
Create new business. This one is obvious and where CEOs often start. They try to sell existing products to new customers. Yes, this could be a play to make, but try to be more creative and open-minded about opportunities. What about expanding from selling products to also selling services?
As an example, one of our businesses distributes products manufactured in-house to wholesale, large retail and D2C channels. We utilized our fulfillment capabilities within this existing business to partner with other companies who were struggling to execute effectively or afford the costs of warehousing, fulfillment and distribution. This addition of selling capabilities not only created incremental revenue, but also led to a completely new business model, which increased our opportunities for long-term growth.
Go direct. Direct to consumer sales can tolerate price fluctuations much more easily than major retailers. Consider expanding online where you can control pricing and margin, however it’s essential that you don’t undercut your retail partners. If you could convert a small percentage of the market by offering a closer brand experience and higher value via D2C, you would improve your P&L without alienating your retail partners. You would also be creating a direct connection and relationship with your consumers, giving you the best pulse on your pricing, products and brand community.
Review Terms. There are also indirect ways to increase revenue. Many businesses struggle securing, controlling and managing freight, which is not only a major cost, but a liability that could put your business with large customers at risk. Could you amend your vendor agreement from Prepaid Freight to FOB Collect? Rebates, discounts, and allowances are also a smart place to look into. Could you reduce or eliminate these programs while keeping your invoice price the same? The retailer will give up some margin, but they won’t need to raise shelf prices to consumers and risk losing retail sales. This one is tricky, but it is an example of how to get creative to improve your business without passing along cost increases.
These strategies are just the beginning. There are endless opportunities to increase revenue, if you are willing to look for and invent them. You don’t have to resort to passing on cost increases as a default, instead you can choose to take the initiative, adapt your business, and expand your products and services.
These strategies for increasing revenue are just the beginning. If you’re willing to commit to all and still feel like you need to pass along cost increases to large retail partners, stick around. The next installment will tee up another set of actionable tips to improve the second core element of your P&L: Reducing Cost of Goods Sold.