We don’t typically think of pricing as a point of profit margin leakage. In fact, we tend to think of pricing as the one component that returns value to our company. A closer look at pricing can reveal some significant margin loss and is worth the time to analyze.
Take for example a recent pricing strategy case study of a high end professional service firm. This company has over 500 service-rendering professionals with annual sales of approximately $22 million. When we first approached this company as their pricing consultants, they insisted that their services were priced at the high end with very little discounting off of list.
One of the first things our price experts performed was a price analysis where we analyzed a history of their transaction data and found over 30 different discounts available to the service professionals to offer customers. While many of these had limits and specific application, many also less controlled. The damage? Just over $2 million was walking out the door each year with little to show in return. Management was shocked at the finding.
The company reeled in many of the unnecessary discounts and kept the ones that rewarded customer loyalty. In the end, $650,000 was retrieved with no loss in sales volume.
Look for price leaks in your freight, payment terms, handling fees, expedited shipping and other areas within the scope of pricing. Sealing these leaks usually means tightening and enforcement of policies. Pricing leaks are often the lowest hanging fruit in pricing improvement initiatives.
Contact Price Point Partners, a team of senior-level pricing experts dedicated to solving the most difficult pricing challenges of manufacturers, distributors and professional service providers since 1998. Call us at 330.342.0923 to speak with a pricing expert directly, or fill out our contact us form and whether you’re looking to engage in our 1-Day Pricing Workshop pricing workshop, executive-level pricing strategy training or would like your own pricing analysis, we’ll get back to you with the information you’re requesting.