Vendavo CFO Dayton Kellenberger has put a lot of thought into the best practices around pricing decisions over the course of his finance career.
At his first job after graduating with a finance degree from the University of Colorado, Kellenberger worked for a consulting company on billing and cost analysis for telecom companies. As finance director at The Coleman Company, he focused on FP&A as well as pricing strategies related to tents and other products sold by the recreational gear company. In 2020, he became CFO of Denver-based Vendavo, which offers tech tools that speed up the process of analyzing, adjusting and executing pricing decisions.
He’s not alone. Recently finance chiefs across industries have needed to be especially focused on pricing as they have sought to protect margins amid record-high inflation that has raised costs. Kellenberger says CFOs are now also grappling with a new pricing dynamic: figuring out how to manage higher-cost inventory that they loaded up on to avoid running out due to supply chain constraints. “As inflation starts to cool, what you’re going to see is more pricing pressure in the end user market,” Kellenberger said in an interview.
Whatever the latest scenario is, Kellenberger believes a robust price-volume-mix analysis can help CFOs when they need to explain why sales or margins are changing from one quarter to the next to their board. He also asserts that finance chiefs must take the next step to act on the data that such an analysis provides. “You want to be able to explain why variances are happening but if you don’t take that analysis and use it to drive strategy within the organization you’re really missing a big piece of the pie,” he said, adding that configured price quotes or CPQ is a tool that he views as the “blocking and tackling of B2B commerce.”
Kellenberger recently spoke to CFO Dive about how technology has changed the speed and methods that finance chiefs can use to make pricing decisions and the evolution of price-volume-mix analyses. The following is a Q&A between Kellenberger and CFO Dive’s Maura Webber Sadovi. Remarks have been edited for clarity.
CFO Dive: Can you talk a little bit about Vendavo?
Dayton Kellenberger: Vendavo has been around for 20 plus years. We focus on digitizing the commercial process between CRMs [customer relationship management] and ERPs [enterprise resource planning]. Really our sweet spot is when you have a lot of complexity and you have a lot of volume and volatility, our solutions really help to take that complexity and simplify it and allow our customers to create a pricing strategy that not only works for them but is actually actionable and executable through our software tools.
CFO Dive: You’re a proponent of price-volume-mix analyses. How does it work?
Dayton Kellenberger: It’s an exercise and an analysis that helps explain changes in your revenue and margins from one period to another. What price-volume-mix is designed to do is to try to identify the gaps between your expected versus actual sales and your expected margin versus actualized margin. So price, volume, and mix are really the three main components there that impact your revenue and your margins from a price perspective.
CFO Dive: Isn’t this something CFOs have always done to some degree?
Dayton Kellenberger: Vendavo provides a tool called margin bridge analyzer which automates this analysis. But you can do it without it. If you’re only selling 10 to 20 products it’s not that big of a lift. If you’re selling potentially millions of SKUs that really makes the process cumbersome.
CFO Dive: How has technology changed the process?
Dayton Kellenberger: The biggest one is the ability to do something in real time versus doing something a month in arrears. Instead of waiting for the quarter to end and telling the story of what happened you can be within a financial quarter and say, wait we’re two weeks in and we have a problem we’re seeing, something we didn’t expect to see. Let’s put an action plan in place now.
CFO Dive: What about shrinkflation (reducing the size or quantity of something but charging the same price); is that one of the strategies you are seeing companies implement?
Dayton Kellenberger: Given the potential for a poor customer experience it’s not something we typically see a lot of. If you’ve got competitors who are using a shrinkflation tactic where they’ve got the same price as you have but they’re lowering the quantity, then you’ve got a decision to make. Do we maintain the same product size but increase price or is the market and customers telling us that they’d rather pay four dollars regardless — even if it gets them a little big less in their tuna fish can? So it’s absolutely a decision that organizations need to make based on the competitive dynamic in their end markets and the way they’re going to be able to see that is by going through a price-volume-mix analysis.