November 16, 2021

Inflation

So in 2019 you sold a Widget for $49.99 at a cost of goods of $19.99.

And now that Widget costs you $26.99.

You have choices.

  • Sell the Widget for $49.99 and instead of earning $30.00 of gross margin you earn $23.00. Your CFO doesn't like this idea.
  • Sell the Widget for $56.99 and you earn $30.00 of gross margin but you see a reduction in annual rebuy rates and a reduction in number of new/reactivated buyers.
Neither solution is good.

But this is where we are headed.

Each "brand" has a different relationship. 
  • Some companies can raise prices and maintain rebuy rates. Those are well-managed companies.
  • Some companies raise prices, which causes reductions in rebuy rates and orders per buyer and items per order but the price increase offsets the reductions. This is a common outcome.
  • Some companies raise prices but the reductions in rebuy rates and orders per buyer and items per order yield a net "zero" gain. This is a common outcome, and it is an awful outcome.
Your job is to measure these relationships and know the EXACT answer to what happens as cost of goods increase. You need to measure this stuff, folks. You have no choice.

Inflation likely looks like an issue we won't shake in 2022.

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