The Uncertainty of Price and Cash Flow

At least six variables, from within an organization and from external forces, will create uncertainty in mind of a small business owner, as a selling price is established on a service or product. The most difficult to grasp is that of perishable opportunities.

When you think of perishable products, you’re probably thinking of the literal translation, such as bread, meat and fruit. It becomes less clear when it’s not the product that perishes, but the opportunity. Think about a weekly magazine issue. The actual magazine doesn’t perish, but the opportunity to sell it at full retail price, after one week, does. Fashion is another example. What sold at full price this past Christmas will probably be hard to move on a discount rack in 6-9 months.

If you want to remove uncertainty and maximize your business revenue, you need to get very good at forecasting when a product (or service) needs to be discounted because of declining value (read: consumer interest).
The opportunity to maximize revenue can be found on the top and bottom end of any service or product. If warmed over, out of date product is clogging your store shelves, whether its fashion, books, or nursery stock, it’s occupying space that could otherwise be selling something more interesting and more in demand. On the back end, moving yesterdays hot item at a marginal discount, before it dies, get’s tattered, and otherwise looses even more value lets you clear out inventory without resorting to a maximum discount.

In professional service firms, instead of a store shelf or warehouse getting clogged up, its time that becomes so finite. A good CPA can command a better hourly rate during the peak of tax season, than she can in the dead of summer. Likewise with an IT company selling a fantastic new backup system, completion will eventually catch up, but in the mean time, the bleeding edge of technology is worth full price.

It’s your job to understand what the value cycle of each product is, and how to maximize it.