For senior executives and owners
Price is the fastest lever you have
Five pricing strategies that keep earning their place, drawn from twenty years of work with companies, private equity funds and their portfolio companies.
- Why a one per cent price improvement outruns every other lever on the P&L
- The nine parts of a price structure, most of which never get reviewed
- Where margin leaks away quietly, and the audit that finds it
PDF, 19 pages. No sales call, and your details are not passed on.
As featured in
- Forbes
- Financial Review
- Expert360
- Clutch
- Eloquens
Why pricing first
A one per cent price rise is worth three volume points.
A price improvement goes straight to the bottom line. Nothing else on the P&L moves profit as far for as little effort, which is why the report starts here.
Company with average economics. Source: Managing Price, Gaining Profit (Marn and Rosiello, Harvard Business Review).
The scale of it
Poor pricing practice is insidious.
It damages the economics of a business and can go unnoticed for years.
85%
of businesses believe they have significant room for improvement in pricing.
Source: Is Pricing Killing Your Profits (Bain & Company).
What we mean by price
Nine components, and most reviews only touch one
Ask about price and most people think of the headline rate. It is usually the smallest part of the structure, and rarely the part with the most margin in it.
Price level
The headline rate of the product or service, and the only component most businesses actively manage.
Pricing basis
One-off against recurring fees, and the unit of measure that recurring fees are charged on, whether time or usage.
Payment terms
Timing and conditions. Up-front payment is a working capital decision as much as a pricing one.
Discounts and rebates
Reductions against the headline rate. Some genuinely buy incremental volume. Many simply dilute margin.
Segment-specific pricing
Different rates for groups of customers who value different things, and will pay accordingly.
Up-sell and cross-sell
Transaction value lifted through premium options or related products bought at the same time.
Ancillary charges
Freight, handling, warranties, support. Charging for them separately also lowers the rate customers anchor to.
Product bundling
Related products or services packaged into a single offer, or unbundled and priced individually.
Complex pricing systems
Dynamic mechanisms such as yield management or auctions, where the market and the data support them.
If you are only looking at the headline rate, you are leaving margin on the table.
The report
Five strategies you can put to work this quarter.
Written as a working guide. Each strategy comes with what to look at, and what to be careful of. Nineteen pages, and no case studies of ourselves.
It opens with the economics: what a price move is actually worth against the other levers available to you, and why so much of it is left alone.
Then the price structure itself, component by component, with the questions to ask of each one before you change a rate.
It closes on the five strategies, including a worked example of a mobile operator that found whole acquisition channels were losing money.
The five, in no particular order.
01
Review your headline rates
Customers are rarely as price sensitive as cost-plus thinking assumes.
02
Close the margin leaks
Audit every discount, rebate and in-kind benefit of the last twelve months.
03
Price the unprofitable tail
Customer profitability by segment first, then by account where it matters.
04
Two or three ancillary lines
Cross-sell, unbundling, and services worth paying separately for.
05
Sales incentives that hold
Reward margin realised, not revenue booked, and track the activity behind it.
From the report
Six per cent of revenue, gone before it reaches the invoice
Research by Bain & Company and Pricefx found the average industrial company loses more than six per cent of revenue through off-invoice discounts and leakage.
Where it goes
Some of it is deliberate and useful. Much of it is granted once and never revisited, often with limited central control over who can offer what. A customer takes a discounted rate in return for volume, and nobody checks that the volume arrived. The five largest sources found were unrecovered freight, rebates, trade spending, consignment cost and early payment discounts.
What moving to value-based pricing is worth
Businesses that move from cost-plus to value-based pricing typically command premiums of five to ten per cent, with margin uplifts of up to a third. Often while customer satisfaction improves, because the work of getting there is the work of understanding what customers actually value.
The Pricing Success Formula
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