Inflation isn’t linear. While we have experienced rising inflation so far in 2022, we expect disinflation, or inflation at a slowing pace, by the second half of this year. This will offer some relief.
- Do you have a tool that helps you see the ebbs and flows of inflationary pressures on your input costs?
- Can you imagine how having this foresight would help with your pricing strategy?
In the April edition of our ITR Advisor™ (included in your Insider™ membership), we advised members that while the war between Russia and Ukraine is contributing to high inflation, it is still necessary to approach the next three years with confidence in an expanding US macroeconomy.
Why? The financial health of both consumers and businesses is still sound, which means we will still see an expanding US economy despite the inflationary headwinds.
This then leads us to a few questions:
- How do you know how bullish to be on your prices in order to protect your margins?
- How do you know how to maximize your purchasing and inventory decisions?
- How do you ensure your profitability moving through the 2020s?
ITR Economics provides solutions that together create a well-rounded roadmap from which you can plan with confidence.
Tool #1: Custom Price Index
ITR Economics has created a way to help our clients better track inflation, and it gives a forward-looking view from which to plan – the Custom Price Index.
How are we able to provide this service?
- You provide specific cost-breakdown information.
- We leverage our far-reaching access to thousands of datasets to identify indexes that reflect those cost inputs.
- You meet with our team to review and agree on the inputs we recommend.
- We build a custom weighted index using the indexes agreed upon.
- We forecast the index four quarters out using our proprietary forecasting processes (backed by our forecasting accuracy).
- You meet with one of our business-minded economists to review the results and discuss how best to use this information in your pricing strategies moving forward.
Tool #2: Company Sales Forecast
Now that you’ve established a solid pricing strategy, it’s important to know what your business’ sales will be doing over the next three years. This will help you plan your budget and sales strategies. This brings us to the second part of our 2020s Battle Plan – The Company Sales Forecast.
Just like inflation – your sales are not linear.
To set correct sales targets, labor needs, salaries you can afford long-term, overall budgets, and capital investments, you need an accurate sales forecast. How is ITR Economics able to provide this service?
- You provide historical sales data and data profile(s).
- We conduct a complimentary preliminary analysis as part of our Proven Process to ensure our ability to meet required forecasting accuracy.
- Our team sends you the findings from the preliminary analysis.
- We proceed with forecasting your sales 12 quarters out using our proprietary forecasting process (backed by our forecasting accuracy).
- You meet with one of our business-minded economists to review the results and discuss how best to use this information in your sales, budget, and resource allocation strategies.
Tool #3: Units Forecast
This is an interesting methodology specifically applicable to this decade of higher inflation.
In periods of inflation, it is normal for your sales trends to be significantly different than your units produced trends.
With this in mind, we recommend that businesses look at both – your sales (for all the reasons listed above) and your units produced. Why?
The units-produced forecast will give you the foresight needed to adequately manage all the factors of production or, if you are not a producer, the costs of carrying inventory. Your sales data may continue to rise due to price changes (identified with the above-described Tool #1), thereby skewing your units-produced expectations.
This Three-Tiered Approach gives you a well-rounded view of
- Specific pricing pressures, enabling you to build a profitable pricing strategy
- Sales activity, which is key to an accurate sales, budget, and cash strategy
- Production expectations, which allow for a resource allocation plan that is lean and effective
Staying profitable through the 2020s may seem difficult – but it doesn’t have to be.
With the right tools, the right people, and the right information, you have an opportunity to prosper even through what may seem like uncertain times.
Contact an ITR Trusted Advisor today so we can see if our 2020s Battle Plan is right for you!
