Unit economics comprehending
A price is the second (first one is a volume) financial shoulder of a company to influence its gains. This is why we should pay such close attention to the company’s unit economics work on it and follow it all the time.
I saw how in many cases people still think that if you count once, it’s okay for some significant amount of time. Obviously, this path doesn’t work, because there are a lot of variables in business and they can change several times during one financial cycle.
Flexible margin management
Why does it actually exist? I found several reasons because of why:
- A wishful to earn no less % margin definite per each contract/order by company pricing policy;
- Not counting a margin in volume of money (10 % of 1k and 10% of 10k. It’s obvious 2 big differences);
- Lack of variation planning and not knowing how this contract will affect the financial results of the period;
- Lack of financial planning and the inability to see the summary picture of these transactions in the P&L statement (‘cause margin per contract could be isn’t enough but in terms of the overall profitability of the period would be acceptable).
How do I get rid of it or what to do about it?
I am in favor of managing pricing and doing it in a flexible and timely manner.
So, when you do (order and contract) pricing count not only margin per unit, take a closer look at your reporting period projected results and after make a decision at what price to sell it at this period.