How Does Pricing Leverage Work for Your Company?

How Does Pricing Leverage Work for Your Company?

We often talk about pricing leverage and how just a little price improvement can dramatically impact the bottom line. While many companies are focused on cost reduction and driving revenue the greatest gain in margin lift comes from price improvement. Of course, depending on your current level of margin performance, price lift will have a different impact on your bottom line.

Here are some publicly held companies that our pricing consultants researched to determine how much a simple 1% gain in price realization would impact their net income.
Company Net Income Gain
Coca Cola 5.4%
Nestle 8.8%
Ford Motor Company 4.3%
FujiFilm 24.6%

Now consider the price/earnings ratio for these companies and what a 1% price improvement would mean for their market capitalization. Let’s take Coca Cola for example. Coke has a current P/E ratio of 19.43. With revenues of $46 billion a 1% price improvement would yield an income gain of $460 million. That would translate into nearly a $8.9 billion improvement in market capitalization. Not bad for a 1% price boost.

Privately held companies are typically valued lower than Coke’s P/E. But, you will still see a dramatic improvement in your company value.

About the Author
Ralph

Ralph Zuponcic

President, Price Point Partners

Ralph is a national authority on strategic pricing. He has been featured in publications including The Wall Street Journal, Fortune Small Business, CFO Magazine and Marketing News.

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