Question

Looking at the company you now work at, where you previously worked, or where a spouse/friend/relative works, which of the 3 basic strategies is employed to keep profits from eroding?

Answer 1

Since inflation affects each company in an industry differently, the first move is to diagnose the evolving cost environments from the raw materials stage to the ultimate consumer's final price. This includes the creation of a value chain, a diagram that shows the value added in the entire business cycle at each level and illustrates the components of changing costs. Next you analyze your rivals ' long-run changes in their cost role compared to your own. Lastly, you are factoring the risk of potential inflation into your own and competition costs.

A business should demonstrate cost production all the way from the raw materials process to the end price charged by the ultimate consumer on a supply chain Strategic cost analysis can not be limited to one's own internal costs, as economy-wide inflation also affects suppliers and distribution networks. In considering the effect of costs both within and outside the business, the value chain helps managers consider the overall cost advantages of going up and down the entire spectrum of the market.

Closer cost-management will improve your productivity. Most businesses will find some waste to minimize, it's crucial not to cut costs to the detriment of the quality of their goods and services. Costing based on operation is an easy way to find the actual cost of different business practices. Activity-based costing tells you how much it costs you to conduct a particular business task by attributing amounts of all of the expenses to specific operations, such as wages, facilities or raw materials.

It is a good idea to test periodically on your pricing. Changes in your marketplace can result in you being able to increase prices without losing sales. It's smart, however, to check any price increases before making them permanent. It's not just the price list that influences the competitiveness-the type of customers to whom you sell will make a huge difference too. Consider the Pareto (often known as the 80/20 rule) principle and how it could relate to your company. Simply put, applying the Pareto principle implies that 20 per cent of your goods or services should gain about 80 per cent of your income. Often the same amount of income is earned from the same number of clients as well.