Blog / Finance February 9, 2022

How Finance Leaders Can Manage Margin Pressures

From production delays to escalating commodity prices, businesses are experiencing a reduction in revenues and the dampening of earnings in a number of sectors.

Courtney James

From production delays to escalating commodity prices, businesses are experiencing a reduction in revenues and the dampening of earnings in a number of sectors.

From production delays to escalating commodity prices, businesses are experiencing a reduction in revenues and the dampening of earnings in a number of sectors. As businesses grapple with issues like the lack of billing transparency and slowing cash flow, operating expenses are also increasing. Margins are being heavily scrutinized due to the volatility of the past two years, and many finance leaders have been forced to make tough choices about cost allocation.

Slimming Margins and Executive Worry 

In today’s market, CFOs are being challenged with the responsibility of keeping margins high while maintaining reasonable prices for consumers. It’s a prevalent issue, with a majority of organizations finding it difficult to navigate. A recent Gartner poll showed that 61% of CFOs have responded to higher prices by passing costs on to customers. Furthermore, three-quarters of CFOs surveyed listed the risk of lower profitability to be their top worry as organizations face broad-based input price inflation. During the on-going uncertainty, we’re seeing businesses face unique obstacles in operating and growing their organizations.

CFOs Can Manage Margin Pressures Amidst the Turbulence

Gartner experts recommend three areas of focus for CFOs as they battle top-down margin pressures:

Make principled price-setting decisions

CFOs should avoid passing on costs to consumers without first determining if input price inflation is temporary and whether their competitors are raising prices. In order to avoid making mistakes that further erode profitability, CFOs should consider price sensitivity. CFOs need a deep understanding into how their customers react to price changes and factor those insights into the decisions they make to help them retain or recapture revenue. This plays a significant role in improving the risk characteristics of such decisions and helps ensure that positive outcomes are achieved.

Rethink talent recruitment and retention

Employees are the centerpiece to running a successful business, especially during times of uncertainty. In regard to talent recruitment and retention, these practices are essential to reducing margin pressures and creating competitive advantages. The findings from a recent Federal Reserve Bank survey indicate that recruiting new talent is difficult, with nearly 60% of CFOs believing it has a negative impact on income. To mitigate this problem, CFOs are best served to conduct a comprehensive workforce review to understand their staff’s needs and expectations. This will help them to establish and update salary ranges for key job roles, as well as determine steps that can be taken to help retain valued employees. By prioritizing staff, CFOs can reinforce their organizations’ economic strength.

Enhances visibility into the supply chain 

Progressive CFOs seek to go beyond diversifying supply chain partners and increase their visibility throughout the supply chain in order to better identify and fix bottlenecks. In certain situations, establishing long-term supply and funding partnerships to keep costs in check can also help alleviate margin pressure in the long run. Taking a methodical approach to vendor and partner selection can help organizations significantly improve their collaboration practices. This initiative can be supported through the right implementation of strategy, investment in digital tools, and the creation of sophisticated partnerships to drive targeted results. 

Whether being forced to masterfully balance strategic priorities or carve out even slimmer margins, CFOs have been tasked with a unique and challenging role in this time of uncertainty. While multiple factors and variables influence the business, these three suggestions provide important considerations for finance leaders looking to limit pressure and stabilize their organizations.

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