Profitability Pressure in 2022

2022 will show an inflation that has not been seen in years and your business is being directly affected by this. It is an important time for business people to consider their pricing structure and consider a price increase to ensure a resilient profitable future. There will be many stubble price pressures such as fuel, power, and insurances, super guarantee, wages etc that will eat away at your profitability and ultimately your lifestyle.

Big price increases from freight are having an immediate effect as freight companies start imposing domestic delivery add on charges, odd shape box surcharge, fuel surcharge hikes, and redelivery costs. This is real. Prices are going up everywhere and if you don’t consider increasing your prices then those increases will come straight off your remuneration for the effort you put in.

So what should you be doing now? I would say that a 10% price increase across the board will be an ideal starting point. You can quickly work out the effect of that. Say your business is turning over $500K per year. A 10% price increase is going to yield an extra $50,000 per year on the jobs you already have. Will your customers tolerate this? My guess is yes when you put the case forward of cost increases. Everyone on the planet know that costs are going up so this is an ideal (and pertinent time to put your prices up)

Engraving going from $5.00 to $5.50 is not going to break the bank. A $1,500 club order going to $1,650 is not going to break the bank. But it will sustain your business and help you achieve the profits that you need and deserve for the complicated business model we work in.

Our Trophy Industry suppliers are certain to be putting prices up very soon. That’s firstly because they have to pass cost increases on and secondly because they are savvy and know they need to maintain profitability. So when the cost of trophy costing $10.00 goes up by 7% let’s look at what that does to your profit. (All figures are ex-gst)

  1. Don’t change your prices. It costs you an extra .70c in materials. If you buy $100,000 of components in a year the same goods will know cost you an extra $7,000.
  2. If you follow recommended retail of 150% which the supplier puts out the a trophy costing $10.00 sells for $25.00 yielding a profit of $15.00 will now cost $10.70 and sell for $26.75 yielding a profit of $16.05.

Hey wait a minute, when it costs us more to buy and we sell at the same margin we are making more money. Wow cost of goods price rises are not such a bad thing.

  1. You could also increase you margin value to say 160% rather than staying at the old 150%. Let’s see how this effects profitability.

New cost is $10.70 x new mark up of 160% = $27.82 sell price making a profit of $17.12. The $27.82 sell price represents a price increase of represents price rise of just over 10% from the original $25.00. You will be making a minimum of 10% more to help cover the cost creep.

This is a crucial time in business and everyone should be having meetings with their accountants to discuss profit maintenance, cash flow and general business profitability.

The next really important thing to consider is the cost of small jobs and specialty items. You should be actively timing small jobs and consider a minimum charge or at least putting the price of odd request up so that you are making extra great profits from these time consuming and disruptive jobs.

Free engraving, free custom centers – they are just silly un-profitable ideas from the old days. Even the smart large operators that spruik free engraving have factored it into the pricing these days and they are booming along. 2022 is going to be a good year for the industry especially for those that tweak their business model and make sure they are making a good profit for the effort they put in.