In many organisations, leaders focus on managing rising costs, assuming cost pass through will naturally protect margins. However, most businesses find cost pass through far more complex than expected. In this episode, Joanna Wells explains why passing through costs is not enough to sustain profitability in volatile markets. She explores how slow pricing decisions, outdated cost data, and reactive approaches can quietly erode margin. In addition, she outlines how a more disciplined and responsive pricing approach helps businesses stay ahead of cost movements and protect margin.
TIME-STAMPED NOTES:
[00:00] Introduction: CEOs Under Cost Pass Through Pressure
[01:44] Cost Pass Through in Highly Volatile Markets
[04:04] Cost Pass Through Must Be Disciplined, Not Reactive
[08:20] Cost Pass Through Without Losing Customers
[10:48] Conclusion: Pricing Is a Team Effort
CEOs Under Cost Pass Through Pressure
[00:00] Across Australia this week, fuel prices have jumped up sharply again.
In Sydney and Melbourne, for instance, we’ve seen increases of 30 to 50 cents per litre in just a few days.
And outside the capitals, the gap is even wider. In regional areas, for instance, prices are like two to six cents higher on average, and in some remote locations, 30 to 50 cents more again.
[00:30] And it’s not just price; we’re now seeing supply disruption on a huge scale. Shipments are delayed; stations are running low in some areas. I drove past a station in the metro area; it was closed, pumps empty. This isn’t a normal price cycle; it’s a supply shock.
And for many businesses in Australia, this isn’t just a headline story; it’s a real cost that’s hitting the P&L immediately. But most companies are still pricing like the market is stable. Many are just still debating whether they should do something about this additional cost. And that gap, that gap right there, is where margin is being lost.
[01:21] Hello and welcome. I’m Joanna Wells, founder of Taylor Wells Advisory, and we focus on helping organisations improve margin through better pricing strategy.
Now, in today’s session, this isn’t going to be about long-term strategy. No, it’s going to be about what CEOs need to do this week.
See whether your pricing is under control
Cost Pass Through in Highly Volatile Markets
[01:44] Now, today, we’ve learned that Iran has refused the 15-point ceasefire plan from the US. This has created even more instability in the global stock markets, and we’re seeing global disruption flowing directly across the world, and that’s impacting Australian businesses as well.
Now the conflict in the Middle East has disrupted key shipping routes, including the Strait of Hormuz, which carries a significant portion of the world’s fuel. And that’s flowing through quickly; fuel prices are rising, shipments are being delayed or redirected, and Australia is particularly exposed.
We import most of our refined fuel, and many businesses are being bought in US dollars and euros. So even when nothing changes operationally, costs still move on, and they’re not moving gradually; they’re moving in steps, and faster than most pricing processes can respond.
[02:46] But here’s what’s really interesting: most leadership teams in Australia are still asking the same question: “What price increase should we take?” But is that the right question to ask in this environment? I think it’s the wrong question.
The real issue here isn’t the price increase itself; it’s how that decision is being made. In many businesses, cost structures aren’t current, FX isn’t fully reflected in cost structures, commodities aren’t tracked closely or even at all, and decisions are based on fundamentally internal costs and historical data.
In some cases, cost inputs are seven to nine months old before a business takes an increase. But as we already know, in that time, costs have already moved on, especially today. So what happens? The increase is set too low, and it’s implemented way too late. So even when prices go up, margin doesn’t recover.
Cost Pass Through Must Be Disciplined, Not Reactive
[04:04] I’m seeing that right now in the waste industry. One of our clients operates a high-capex business: large fleet, high fuel exposure, and tight margins. As fuel prices have moved recently, their costs have shifted almost day by day, and their pricing really wasn’t set up to move that way. It was set up for more stable markets.
So what’s happening now? They’re absorbing more of that cost increase. At first, it didn’t seem to be a big issue; it looked manageable. People thought, “Oh well, you know, the crisis will end, things will change, there will be peace.” But that’s not happening. So what’s happening financially? Costs are compounding, margin’s declining, and now at an accelerated rate. And the issue really isn’t margin anymore; it’s become a question of sustainability.
And this is the shift most companies haven’t made. They are still pricing on a schedule. They still think they are in a stable market. They are not. There are annual reviews, annual reviews! When costs are increasing this quickly: Planned increases, long lead times, but costs are no longer moving on a schedule like this. They’re moving continuously, day by day.
And most B2B businesses still adjust pricing annually, or now I’m hearing maybe we’ll do it twice a year, as if that’s a big breakthrough. Well, let’s think about this: your costs are moving monthly, weekly, and I’ve just explained daily when it comes to fuel. So there’s a gap; costs are moving quickly, prices are moving slowly, and that gap is where your margin is fundamentally disappearing.
So here’s the question for leaders: Are you setting prices based on how the market used to move or how it’s moving right now? And how quickly can you respond when things change?
[06:15] In many businesses today, pricing decisions are very, very slow. Cost inputs are fundamentally outdated, and teams really are firefighting and reacting after the fact rather than anticipating and leading on the front foot. And that creates a compounding effect. You underestimate the increase, you delay the timing, and what happens? Well, costs continue to move, and so margins erode without a single obvious decision.
[06:54] So what should CEOs do this week? Let me make this practical and simple. From what I’ve seen, the companies managing this well right now, today, are doing things differently from most other businesses.
They’re not debating fuel every time it moves; they’ve already built it into pricing, often as a separate line item linked to an index with clear rules. So when fuel moves, pricing moves. They’re not relying on historical cost data alone; they’re tracking what’s happening now by commodities, FX, and key inputs. And in some cases, they’re using forward views.
They are not smoothing increases across the product portfolio; they’re being much more precise. They’re not relying on legacy contracts; they’ve built in new clauses, they’ve built new mechanisms that allow pricing to move. They’re preparing customers early and explaining the rules before the outcome.
But it’s not as simple as just passing everything through. I’ve seen businesses try that and lose volume and very, very quickly. So the goal isn’t just pass-through; it’s controlled pass-through.
Cost Pass Through Without Losing Customers
[08:20] I was speaking with a CFO recently who said, “Oh, we could have achieved the same result that you did with a simple 5% blanket increase.”But that’s not what we did when we helped this client. We actually segmented the increase by customer, by product, by channel, by cost exposure. And what happened? We recovered margin safely.
Passing through costs is easy, well, if you use a blanket cost increase approach. But passing them through across hundreds of thousands of SKUs, and without losing customers, is the real skill.
In unstable markets, margin is lost fundamentally in the gap between cost movement, pricing decisions, and time.
This isn’t about reacting to global events; it’s about recognising that the market has changed, and pricing needs to change with it. In stable markets, pricing is planned, but right now, pricing needs to be planned but also managed in real-time.
There are two very significant outcomes from this disruption at the moment: either your pricing keeps up with your costs, or your margin funds the difference. So if there’s one thing to do right now, bring your cost position forward today if you can. Because if you don’t, you’ll be making pricing decisions based on costs that no longer exist.
And if you forward-project two weeks, if this continues, you’ll set prices too low, you’ll move too late, and you’ll absorb the difference. And once that margin is gone, you just don’t get it back. And if your business runs on slower cycles, long lead times, legacy pricing schedules, annual contracts, etc., that risk is even higher. Because by the time your pricing moves, your costs will have already moved again. You don’t just absorb one increase; you absorb multiple. That’s how margin is lost, slowly at first, and then all at once.
〉〉〉 Get Your FREE Pricing Audit 〉〉〉
Conclusion: Pricing Is a Team Effort
[10:48] If this episode was useful, feel free to share it with someone in your team who’s dealing with these types of challenges right now. Pricing decisions don’t sit in one function; they sit across the business. And pricing teams and whoever’s dealing with these types of pricing challenges need all the help they can get.
If you or they would like more insights, help and advice, feel free to follow along or connect with me. Thank you very much for listening. I’m Joanna Wells, founder of Taylor Wells Advisory, and I look forward to seeing you in the next episode. Goodbye.
For a comprehensive view on margin management, building a great pricing team, and to prevent loss in revenue,
Read This CEO Pricing Strategy To Improve Margin Management & EBIT
Are you a business in need of help aligning your pricing strategy, people, and operations, and margin management to deliver an immediate impact on profit?
If so, please call (+61) 2 9000 1115.
You can also email us at team@taylorwells.com.au if you have any further questions.
