Session 4 Flashcards
describe the components of contribution reporting and its relevance in the context of PM
Contribution reporting:
VARIABLE COSTS
Costs that vary in direct relation to the level of activity related to those costs
Costs of doing business
fixed costs
Costs that do not change regardless of changes in the level of activity; they exist whether or not product is produced
Costs of being in business
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True financial contribution requires understanding of cost drivers of various products and customers.
All costs should be allocated to particular products or customers to determine the true financial contribution
describe the concept of economic value modeling
Economic value is the maximum amount a consumer is willing to pay for an item in a free market economy
You essentially follow some simple steps to show the value.
(There is a graphic in the notes worth checking)
describe the concept of pocket price waterfall
“The major goal of a price waterfall system should be to identify and eliminate profit leakages.”
POCKET PRICE: The “pocket price” is a measure of the effective price paid by the customer in a particular transaction after accounting for all relevant discounts, promotions, rebates and allowances.
POCKET PRICE WATERFALL: The “pocket price waterfall” reveals how price erodes between a company’s invoice figure and the actual amount paid by the customer–the transaction price. It tracks volume purchase discounts, early payment bonuses, and frequent customer incentives that squeeze a company’s profits
Now why is it all that important? Right pricing is a more subtle game than setting list prices or even tracking invoice prices. Significant amounts of dollars can leak away from list or base prices as customers receive discounts, incentives and other giveaways to seal contracts and maintain volumes.
reflect upon the types of costs that PMs need to take into consideration
- Product returns
- Unbilled freight
- Discounts
