There is great value in giving deliberate attention to each of the biggest levers of your business.
At the simplest level, a company’s revenue formula is going to look something like this:
Volume X Price = Revenue
We frequently talk with sales teams and leaders that, rightfully so, spend constant effort, their best thinking, and investments in people, software, and marketing to drive volume. The pursuit of volume is one of the greatest challenges in business and is critical to growth and development.
But what about the other side of the revenue equation?
Many of these same businesses that have clear plans and deep expertise in volume-driving activities spend very little time on the price side of the equation. Price is where the value is captured from all the company’s branding, sales, marketing, product development, and differentiation efforts. For reasons ranging from heritage approaches to pricing, lack of internal expertise, lack of time or process to evaluate, or lack of prioritization, sub optimal pricing can leave money on the table. Also, the way that pricing, packaging, and value communication are executed can create unintended barriers to conversion, upsell, and retention of customers.
Companies that excel at driving volume while having intentionally-designed pricing, packaging, and value communication are best positioned to outperform those who don’t. Some questions below can help to evaluate the price opportunity at your company.
Questions for Consideration
- What plans do we have for pricing?
- Are our pricing moves reactive or proactive?
- What tells us if we’re doing well at pricing or have opportunities?
- What data is gathered on pricing (beyond the anecdotal)?
Do we have a good gauge for the competition and how that plays into our future plans?
- Are we able to articulate why our pricing plans are the best option, beyond keeping up with costs?
- How should we be packaging and pricing our offerings for best outcomes?
- Are we able to successfully implement price changes?
- What processes are in place to ensure the price lever is working consistently?
These questions are by no means exhaustive but should be helpful as a simple diagnostic. If you’re reading these and feeling solid about where you are on your pricing strategy, fantastic. That would indicate your company has a sound level of pricing maturity, and you’re reaping the benefits. If you’re feeling like there is a lot of opportunity after reviewing these questions, then an exciting pivot point in your company’s future could be on the horizon.
Questions 1-3 are meant to self-evaluate the state of pricing strategy, whether it’s as intentionally managed as other critical parts of the business.
Questions 4-7 cover topics related to the creation and enhancement of pricing plans, or information that can deliver insight for decision making.
Question 8 has to do with successful and sustainable change to deliver the benefits and moving beyond periodic moves to folding price into business planning processes.
Things You Can Do Right Now
If there is an opportunity for a stronger pricing strategy, there are meaningful actions you can take today:
- Spend time on pricing – beyond when you have to. Carve out some time to think about how your company could capture more value via pricing. Get a few key people in a meeting and talk through opportunities and challenges. Share ideas about ways to bolster value and offerings. Oftentimes there are many ideas in the organization that don’t have an avenue for execution until you take this step and discuss them.
- Gather available data. Consider what information and routines could be developed to give more visibility to pricing. Often the act of increasing visibility can make healthy changes to behaviors. For example, adding price reporting into business reviews, obtaining reports on discounting, understanding the consistency of pricing across teams, and price trends versus cost trends.
- Evaluate changes that could yield a high ROI. Think about changes that would need to be made organizationally. What accountabilities and processes would need to change to yield the benefit – even if the changes aren’t wide ranging now. Identifying opportunities, listening to concerns, and leveraging your data can start you on a path to stronger pricing in the future.
After taking some initial steps and getting some wins, the team can then begin working on longer-term planning and opportunity identification based on what they learn.
Feel free to contact our team at Maple Street for additional insights