CFOs, especially those who regularly deal with private equity investors, find themselves under immense pressure to deliver quick returns. And at times when business slows, like today, the CFO will often turn to cost-cutting as a means of gaining efficiencies and meeting expectations. But a different pricing strategy, with key input from the CFO, should be part of the mix, too.
Tom Fencl, CFO at SaaS-based pricing software company Pricefx, says that pricing, when done correctly, can be hugely helpful as a sustainable value-adding mechanism and can provide a company with the quick wins it might need to stave off severe money troubles.
Munich, Germany-based Pricefx provides cloud-based software for price management, price optimization, and configure-price-quote (CPQ) solutions to companies in the United States, Switzerland, the Czech Republic and Australia.
According to Fencl, having a say in price setting can provide CFOs a bigger role in commercial strategy. The CFO prefers to use data and measurable facts to make strategic pricing recommendations, not the black art of the sales organization, Fencl said.
The basics of the price tag
"The first thing [CFOs] should do is get involved," Fencl told CFO Dive. “Too often, customers ask us who should be in charge of pricing. I firmly believe CFOs should be, if not leading, then certainly very heavily involved in pricing decisions."
Frequently, CFOs are relegated to being in charge of an organization’s costs which, while important to control, Fencl said, there's only so much you can do.
"Any organization, regardless of how well-managed, can always create more value on the revenue side," Fencl said. "I see us CFOs as stewards of value creation within the company. We should be thinking about revenue and how it interacts with pricing."
Fencl recalls the old days when, as CFO, he'd say, 'Oh, well, you should have more profits and revenue.' Well, we either have more volume but we need stock prices and we are kind of simplistic in response to that," he said. "But as you get into the details, you realize there are ways to adjust and optimize all these parameters."
The pandemic's impact
Pricing during the pandemic has become a more pronounced issue for many Pricefx clients. "You need to be sensitive to the fact that it's not just the pandemic; it's the recession, it's the economic situation that comes from the health crisis," Fencl said. "You may want to adjust your model if your customers have problems with purchasing power."
Returning to the notion of optimizing multiple parameters at same time, one of the things Fencl would like to do, from a CFO perspective, is protect margins, including by offering better payment terms.
"That kind of logic, you can’t just prudently say, ‘Oh, you can get a 5% discount.’ You want to understand the implications of that," he said. "Maybe the way to think about this is, as the economic environment gets tougher, people need to be smarter about how they interact with customers. You can't always just assume the market will do the work for you."
But if a company is performing well during these times, should they still consider revamping their pricing model?
Fencl thinks the old adage, "If ain’t broken, don't fix it" is a false comfort here. You still need to understand the gravity of your decisions under business as usual conditions.
"You may be doing well now but things can change," he said. "The kind of shift I was talking about before, when we go from Excel to something more modern and robust, allows you to have a deeper, more nuanced understanding of the macros affecting your organization, such as how dependent you are on certain customers or channels."
This, he said, in turn will allow you to predict whether this is something that will improve or worsen.
The big picture
Fencl encourages CFOs to consider the domino effect of pricing. "Even if your company is doing well, this is relevant, because if nothing else, as CFO, I want to be able to report to the rest of the c-suite and the board that we're doing well because of these choices," he said. "As long as we maintain these things, we can continue doing well."
The pandemic has encouraged Fencl to be more diligent about his company's own pricing strategy. "Understanding what our cash is doing, and cash collection in general are top of mind," he said. "We’re a high growth company, and we still burn cash. Our revenue steam is growing in double digits year over year, but in this current economy, we still invest a lot into the business at the top. We're reviewing how to balance growth with investment."
Companies like Pricefx need a runway, he said, referring to sufficient funding for the long run. "Ultimately, we must have a plan in place to reach profitability," he said. "No matter how fast we grow, we need to be profitable. We have those plans, and are actively revising them."
For CFOs in search of guidance for weathering the current storm, Fencl emphasizes one particular point — communication.
"It's the pilot jet rule: navigate and communicate, keep the plane afloat, and know where you're going," he said.
"Communication is important in all directions. As CFO, you want to communicate first and foremost with fellow executives. They need to understand all your insights. Also communicate with the board and investors. And last but not least, communicate with the company, middle management and employee base; those are ultimately people who put strategies in action."
Additionally, Fencl urges CFOs not to forget to take seriously the wellbeing of your customers, clients and staff.
"We always spend a lot of time and energy on cutting costs, and how we do it so we don’t cut into need," he explained. "We want our people to be there for the future, and we don't want to be a business of hire-fire-hire."
Getting that balance right is not easy, but is very important, because at Pricefx, Fencl and his team ultimately believe that after the crisis will come a rebound, "and we want to get there with all our employees having been well-taken care of."