What Does a CFO Do? Pt. 9, Pricing & Cost Analysis
In our continuing series detailing the duties of a CFO, today we discuss the CFO’s role as it relates to Pricing and Cost Analysis. With well conceived analysis, a CFO can really earn their keep in these areas. In today’s business climate making sure your pricing is just right is as critical as ever. Likewise, keep costs contained and margins intact is necessary to keep pricing at a point that will allow for an acceptable bottom-line profit. So what should your CFO be doing to control these items?
Analyzing pricing and cost trends typically should start with an evaluation of historical estimating, sales and production numbers. Understanding your costs is key to pricing effectively and keeping your margins at profitable levels. By using historical data, you can identify future sales opportunities and better define your target markets. For example, wouldn’t you want your sales people spending more time on your highest margin products or services?
Benchmarking your cost and expense data to local, industry, and competitive averages is another must. How do you compete amongst these factors? If your costs are the highest, then you better not be following a low-cost differentiation strategy. To the contrary, you should be differentiating yourself on value, service, quality, etc. in order to command a premium price point. A CFO should assist you and your management team in arriving at these strategic conclusions.
Furthermore, your CFO should be constantly working with management to identify areas for cost and expense reduction. These reductions can come from a wide variety of sources, and certainly vary depending on each company’s situation. Typical areas to explore include:
- Labor tracking and reporting to increase accountability and improve efficiency.
- Project start-up and close-out meetings to keep cost reduction top-of-mind.
- Analysis and refinement of core business models and value propositions.
- Re-negotiate with suppliers and plan annual competitive bidding.
- Re-evaluating overhead structure.
- Identify areas of cost and/or expense to outsource.
- Establish department teams charged with specific cost reduction goals.
- Process improvement initiatives.
By addressing these issues, your CFO can help your business stay competitive, keep margins in line, and price effectively.
Stay tuned for the next and final installment, Part 10, as we discuss the CFO’s role in “Risk Management and Governance.”
If you missed the previous posts, here they are:
- Part 1 Introduction, click here.
- Part 2 on Cash Management, click here.
- Part 3 on Financial Reporting, click here.
- Part 4 on Accounting, click here.
- Part 5 on IT Development, click here.
- Part 6 on Strategic and Financial Planning, click here.
- Part 7 on Stakeholder Relations, click here.
- Part 8 on Human Resources, click here.
About Gateway CFO Solutions, LLC:
Based in St. Louis, Gateway CFO Solutions helps small businesses grow profits and revenues, and bring peace of mind to their company’s financial picture through part-time CFO services. Many small business owners are without a trusted advisor for the financial side of their business, and they have seemingly few resources to turn to for expert guidance. We provide that guidance and act as a trusted, strategic advisor for our clients. We provide both broad, global planning and “roll up the sleeves” technical services.