Part 1: Product Cost Analysis

According to Harvard, Product Management is the process of overseeing the creation of a product from idea to launch, to the end of its lifecycle. The Product Manager is the one responsible to make it happen successfully, always in collaboration with other functional areas of the organization.

Product Management is one of my professional passions – I’m deeply amazed by how a concept can turn into a product that makes the customer’s life easier, while driving business growth and success. It may be a long or a very short ride, either way, I enjoy it!

I’ve learned some things in my years in Product Management and I would like to start to share my experience, starting from a pricing approach. Yes, I’m a Marketer and I love numbers!

What I’m about to share it’s not the absolute truth, it’s what I’ve learned and has worked for me while managing durable goods. This blog post is part of a 6-part series diving into essential pricing insights, designed to guide you through the complexities of effective product management, from a Pricing Perspective.

I’ll start with Product Cost Analysis. You need to know your product to the bones, how much each little thing that makes it what it is, costs. Here, we’re just looking at the hard material, we’re not at the value proposition and the benefits that will set this product apart in the market yet (don’t get me wrong, that also plays a big part!).

1️⃣ Have clarity of the cost breakdown and understand which parts of that cost may change in time and why. Identify must-have, good-to-have and nice-to-have costs. This way you’ll have options for optimization, and it gives us flexibility when assigning a price; for example, packaging, labeling and other nice-to-haves that could be easily adjusted… Maybe you don’t need a shiny and fancy label, or maybe we could save on packaging by changing the printing technology.

2️⃣ Consider your raw material and how the cost of those materials naturally behaves. If your raw material is PVC, how does that commodity behave? Is there an expectation for it to change drastically? If so, run different scenarios. Add at this point other costs that without incurring them, the product would not exist or may not get to market, for example, labor and fixed commission for the sales team.

3️⃣ And finally, is there a target margin that the organization is looking for? This margin should be able to cover everything I just discussed, the rest of the variable costs and stakeholders’ profitability expectations.

❔ In your experience, what else do you think it’s important to consider in this initial part of the process? Do you think this approach is very different in the CPG industry?

📢 Stay tuned for Part 2: Market Deep Dive!