Client

Our client is a luxury hair and beauty fusion service, enhanced with food and drinks offerings.

Purpose

Our client required a financial model and pricing analysis to determine the optimal prices for their products and services and assess their impact on operating margins.

The Pricing Analysis involved:

• Exploratory Data Analysis – understanding customer spending behaviours and service trends. Visualisations supporting the analysis was included in the report.
• RFM Analysis – Recency, Frequency, Monetary analysis to segment the customers based on their purchase behaviour. This method aims to better understand and target specific customer segments for personalised discount offerings.
• Simulation – Due to the absence of recent price changes, traditional price sensitivity analysis was not possible. Instead, we employed Poisson simulations to forecast average monthly clientele, revenue, discounts, and profit margins. This enabled us to experiment with different pricing structures to maximise profit margins, ultimately integrating three optimal price structures into the financial model.

The Margin Analysis included:

• Data Input – the ability to import monthly demand volume for salon and drinks services, accounting data for the stores and head office, and 3 pricing recommendations.
• Scenario Handler – the inclusion of a comprehensive scenario handler tool which allowed detailed scenarios to be developed through the import of pricing methodologies and flexing of direct costs.
• Store Margin Analysis – this dashboard detailed the historic P&L for each store, providing the user with information on margins prior to and after increasing prices.
• Product Margin Analysis – this output sheet detailed the gross profit for salon and drinks services, highlighting the breakdown of each direct cost. The user was able to select a scenario for this sheet to understand the impact on margins of increasing prices and/or costs.
• Competitor Pricing – this output sheet provided a list of competitor offerings and pricing for benchmarking comparison.

Approach

An in-person discussion between the CEO and Forecast initiated the project and regular meetings were scheduled between the project teams. Forecast worked closely with the client to develop a financial model and pricing report that would provide the level of analysis required to give the client confidence in their pricing decision. A critical part of the model was to ensure that the client’s margin was maximised under a range of scenarios relating to input prices.

Outcome

Forecast delivered a detailed pricing analysis report and a live financial model that showcased the impact of these new prices on the profit and operating margins. The client proceeded with the proposed pricing increase resulting in a significant uplift in company profitability.