Pricing Leaks and the Power of 1%
We recently completed a series of strategic pricing training programs for a leading manufacturer of bearings. One of the key themes of our program is “the power of 1%”. That is, the leverage effect that pricing has on profit margins. Small incremental changes in price can have huge impact on margins.
A simple 1% price leak for the average U.S. corporation reduces earnings by 11%. And, an innocent little price leak of 3% for the average S&P 500 company knocks down margins by 37%.
Finding ways to improve overall pricing performance is worth a lot of time and energy.
One area that we see opportunity to capture 1% is in price leaks. We often see businesses experiencing pricing leaks in a number of forms including volume discounts, rebates, freight, expedited shipping and many others. These pricing leaks have a huge negative impact on profits.
One way to leverage “the power of 1%” is to identify the price leaks within your company and seal these leaks. After conducting a thorough price analysis using our proprietary pricing analytics, our pricing experts uncovered fifteen price leaks within our bearing manufacturing client’s business. While many discounts are warranted some programs accumulate over time and just simply become outdated and overused. Identify and review each program. Quantify the amount of the leak and determine if the discount program is warranted.
In another pricing strategy case study, a high-end services client found over $2 million in price leakage. After a thorough review, these leaks were reduced by $650,000 which went straight to the bottom line. [Read more on our Personal Services Pricing Strategy Case Study page]
Think of price improvement in small incremental terms. And remember to investigate the leaks as an effective way to achieving 1% improvement.
Call a Price Point Partners pricing consultant at 330-342-0923 if you wish to learn more about price leaks. Ask about a list of potential leaks that you may find in your company.