How Pricing Analysis Helped Frame Works
A Case Study of how KB Consulting’s pricing program increased profit
Overview of the original situation:
The owner of Frame Works worked too much for too little
Tom Perrine had owned and operated Frame Works for several years when he began work with KB Consulting. Over that period of time, Tom could pay his operating expenses, but often found it difficult to pay himself each month. Tom also found himself working 6 days per week because he was the only company employee.
Our primary goal was to create enough income so Tom could consistently pay himself and to add part-time help to reduce his work hours.
How we met Tom’s goals:
Implemented a new pricing strategy to improve margins & profits
An analysis of Frame Works operating costs showed that Tom had done a very good job of controlling company expenses. Therefore, the only ways to improve income were to either grow his customer base or improve the gross margin on his current volume of sales.
Since growing the customer base would take several months, we focused initially on improving the company gross margin. First, we broke down Tom’s current pricing strategy which revealed that his current gross margin including material waste and yield was 66%. Tom also had been discounting because of his uncertainty about his prices, although total discounts had not been accurately measured.
A new pricing strategy was created which improved the company gross margin to 72% and improved cashflow about $15,000 per year. We also began to track discounts so that we could track the full potential of the new pricing strategy and give Tom the confidence to rely in the new pricing strategy without offering price reductions.
The results of this program:
Proper compensation with no adverse effects on sales
Since the pricing and profitability analysis, Tom has been able to pay himself every payday. He has even added a new part time employee which has allowed him to take a business trip to a national convention and to have some personal time off. The pricing increase had no adverse effects on Tom’s clients as sales over the following year have grown substantially.
Tom says his experience with KB Consulting helped him build confidence in instituting change in his company. These changes have given him the confidence to charge prices which compensate him properly and even have allowed contributions to his retirement plan.