Customer Relationship Management

By PRWEB

Many large businesses have implemented price optimization software that helps them determine the costs of their products and services and computes the optimum prices to charge customers and clients. Small and mid-sized businesses can achieve the same benefits by using activity-based costing (or ABC).

Dallas, TX consulting firm RWSMC recommends activity-based costing instead of price optimization software

Many large businesses have purchased and installed price optimization software that helps them determine the costs of their products and services and computes the optimum prices to charge customers and clients. Small retail businesses are now considering this software as an aid in competing with giant competitors such as Wal-Mart. Robert W. Scroggins, a principal in the Dallas consulting firm RWSMC, says, “Small and mid-sized businesses can achieve the same benefits of price optimization software by using activity-based costing (or ABC).”

ABC is a costing method developed in the 1980s to help large industrial firms improve their product costing and business processes, enabling them to compete against their lower-priced competition. ABC involves analyzing the activities and processes that are required in order to accomplish the objectives of a firm and then assigning supporting overhead costs to those objectives in a rational manner, allowing you to compute the real cost of producing, selling, and delivering products and services.

According to Scroggins, “An ABC analysis lets us prepare a recipe or ‘bill of materials’ for a client’s goods and services so that you can see their revenue and costs by product or service, customer or client, and the level of support required. ABC can identify the 20% of customers that are responsible for 80% of the profit of most businesses. This will provide all of the price optimization information that many businesses need—at a reasonable cost and without the implementation problems of price optimization software.” Scroggins says that his firm keeps costs down for an ABC analysis for small to mid-sized businesses by using Excel spreadsheets instead of price optimization software.

For companies that decide to implement price optimization software, Scroggins says that his firm recommends an activity-based cost analysis prior to implementation. He explains that, “This enables you to get a good “baseline” of cost information to enter into the price optimization software.”

Scroggins concludes by saying, “Our objective is to optimize prices for a company’s products and services—not to maximize revenue for software sellers and installers.”