Marginal Costing: its financial leverage potential is grossly underestimated

Many organizations set up pricing rules that minimize gross margins. This is a proven and acceptable practice. As this pandemic continues it is critical to explore pricing innovations that go beyond pricing model innovations.

One example is applying the power of marginal costing when facing aggressive competitive forces. When an organization has a clear view of its fixed costs and break-even point, it can justify marginal costing innovations.

While the organizations should not send confusing messages in changing prices, marginal costing innovations can help when expanding into new markets or new segments and can occasionally beat aggressive competition in existing markets. Customer-sensitive pricing also helps to establish brand loyalty and boost the morale of resellers and partners.