In my Pricing / Forecasting projects ($4,900 … kevinh@minethatdata.com), I start by initializing a “base case” … what would happen under normal conditions, same prices?
This business is at equilibrium …. the customer file is at a comparable size year-over-year, which means sales/profit are comparably year-over-year. We now have our “base case”.
Let’s say your cost of goods increase by 15% this year. Let’s say you keep prices the same, you eat the profit instead of the customer. Does the cost of goods increase eat up profit?
Look at that … you eat $4,000,000 in profit.
You’re not going to eat $4,000,000 in profit, are you? You’ll past the cost along to the customer. Tomorrow, we’ll see if the customer is willing to eat up discretionary spend as a consequence.
