Navigating the Holiday Sales Landscape
The holiday season is a critical period for consumer brands. With increased sales and heightened competition, businesses must capitalize on the surge while protecting their profit margins. Maintaining these margins, however, can be challenging amid discounts and competitive pricing. This blog post will explore strategies to accurately track landed costs and optimize margins during the bustling holiday rush. We’ll outline actionable steps for finance and operations teams to assess performance at the season's end and refine strategies for future growth.
The Impact of Holiday Sales on Margins
During the holiday season, driving sales via discounts and promotions to capture top-line revenue is an obvious priority for brands. However, it’s contribution dollars — profit after subtracting variable costs — that represents a critical measure of financial health and often determines whether the season’s growth initiatives were a true success. Focusing on contribution dollars (and margin) ensures that brands optimize for profitability and make informed decisions that directly affect their bottom line and cash flow.
The Importance of Landed Costs
Calculating contribution dollars and margins starts with tracking accurate landed cost at the SKU level. Without precise landed cost data, pricing, promotions, and inventory decisions can erode margins, leading to outcomes that fall short of expectations. Landed costs include all expenses involved in bringing a product to market, from materials and labor to shipping, customs duties, and insurance. Accurately tracking these costs is essential for:
- Comprehensive Cost Assessment: Tracking all costs ensures that no expenses are overlooked, allowing for more accurate pricing and better control over inventory levels
- SKU-Level Insights: Analyzing landed costs at the SKU level provides valuable insights into which products contribute most to profitability, allowing for more precise decisions on pricing and promotions.
- Impact on Financial Statements: Accurate landed cost tracking is crucial for proper inventory valuation and financial reporting, helping avoid misstatements that could distort pricing and sales strategies.
Practical Steps to Track Accurate Landed Costs
While tracking landed costs is critical for visibility into margins, it can be a challenge due to data fragmentation, lack of standardization, and indirect cost allocation calculations. Here are several practical steps brands can take to ensure precise tracking:
- Implement Real-time Tracking Software: Invest in software that automates tracking landed costs in real-time to enhance accuracy and save time. Automation reduces the risk of human error and provides you with up-to-date insights into your total costs, enabling more timely adjustments to pricing and procurement as well as allowing operations and finance to focus on more strategic tasks.
- Integrate Systems for Seamless Data Flow: Ensure that your inventory management, sales, and accounting systems are integrated to provide a seamless flow of data. Additionally, centralizing logistics documents, like shipping invoices and customs paperwork, ensures easy access and accurate reference during the costing process.
- Analyze Historical Cost Data. Review historical data to identify trends in landed costs associated with different suppliers and shipping methods. Understanding these patterns enables more accurate cost forecasting and an improved negotiating position with vendors.
- Monitor Supplier Agreements. Regularly review and renegotiate contracts with suppliers to ensure that you are getting the best possible rates for shipping, customs duties, and other associated costs. This proactive approach can significantly lower your overall landed costs.
Leveraging Accurate Landed Costs for Strategic Advantage
Accurate landed cost tracking provides brands with critical insights that can enhance profitability and operational efficiency. Here are three ways brands can use precise landed cost data to their advantage:
- Optimize Bundles and Promote High-Margin Products: Understanding landed costs at the SKU level helps brands create bundles that maximize contribution margins, pairing slower moving items with high demand, high-margin products. Brands can also prioritize their high-margin promotions in holiday marketing campaigns to align sales efforts align with profitability goals.
- Optimize Pricing Strategies and Focus on Cost Reduction: Accurate landed cost data enables brands to set competitive prices that reflect true product costs, allowing for strategic discounts on lower-cost items while protecting higher-cost products. Brands can use landed cost breakdowns to identify rising expenses and focus cost-reduction efforts, such as renegotiating supplier terms or exploring alternative shipping methods, to boost profitability.
- Improve Inventory Management: Understanding landed costs is essential for effective demand forecasting and inventory control. Brands that accurately track their landed costs can make informed decisions on order quantities and timing, preventing stockouts of high-demand items while reducing the risk of overstocking lower-margin products and ensuring sufficient cash coverage that accounts for all associate expenses, including freight and customs.
Preparing for the Post-Holiday Review
Once the holiday season concludes, it’s critical to evaluate the impact of your strategies to refine your approach for next year. The key areas to review include:
- Evaluate Margin Impact: Assess whether your landed cost tracking allowed you to set accurate pricing during the holiday rush. If certain products didn’t meet margin expectations, review where miscalculations occurred and adjust your pricing or cost forecasting methods for future campaigns.
- Assess Cost Trends: Identify any trends in supplier pricing, shipping costs, or changes in production methods. If there were unexpected cost increases, consider renegotiating supplier agreements or revisiting your procurement strategy for the next season. This helps ensure you’re not caught off guard by rising costs in the future.
- Refine Future Strategies: Based on the data gathered, adjust your procurement strategies, renegotiate supplier contracts, and optimize pricing models for the next holiday season. By integrating these learnings into your future plans, you can better prepare for the upcoming year’s holiday rush, ensuring your cost structure supports long-term profitability.
Conclusion
The holiday season offers an invaluable opportunity to drive growth, but it also brings significant challenges, particularly in maintaining healthy margins. Accurate tracking of landed costs not only enables consumer brands to protect their profitability during this crucial time, but also provides the strategic insights needed to plan for future success. By optimizing landed cost management—through real-time tracking, strategic pricing, and inventory control—brands can navigate the complexities of the season with greater confidence.
As you consider ways to optimize your landed cost tracking, think about how Mandrel can support your efforts. With AI-powered tools that automate the costing process and real-time insights, Mandrel can help you make informed decisions about pricing and inventory management, so you can navigate the complexities of the holiday season effectively and ensure your margins remain intact.