Price Cutting, A Race to the Bottom

In this tough business environment, it is tempting to cut prices to pick up or hold onto sales. However, margin erosion has to be monitored carefully.

 

See the following chart:

 

 

As you can see, small changes in price can greatly affect profit and plant/people utilization. If you are forced to cut prices, costs need attacked aggressively. Take a look at your sales force. Are they just “order takers” who sell on price alone or do they up sell your products with a focus on solutions and value.

 

When is the last time you looked at your vendor relationships and made sure pricing and terms cannot be improved? How about your staff? Is your labor costs based on old production/sales levels?

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