Pricing Policy and Margin Management

Pricing can be likened to the accelerator of your car.  Applied appropriately, the result can be exhilarating.  Otherwise; the consequences can be disastrous.

Poor pricing decisions are among the top causes of business failure; and conversely; good pricing decisions are among the top causes of sustainable business success.

So how sure are you that you've got it right?  Could your business be in a better state with revised pricing?

Have you ever noticed how ordinary sales and marketing consultants focus all their attention on the top line of the P&L (the sales figures); and that most accountants focus almost entirely on the expenses?

Smart business owners know it is the interaction of 'Sales' to 'Cost of Sales' and other factors across the entire range of products and/or services that needs to be understood in order to ensure profitability and successful growth of a business.

It may seem like 'common' sense; but we see many businesses working harder and harder for increased sales, only to be worse off because those sales were mainly achieved by poor pricing at reduced margin.

Any and all businesses can fall prey to this mistake - and have done - regardless of their size, market or reputation.  In Australia, consider OneTel as a recent and highly publicised example.

The price 'accelerator' is a delicate instrument!  For better or for worse.

To illustrate just how delicate, let's look at some numbers.  Specifically, what happens if we change prices by just 5%?

On the downside ... discounting by 5% ...

For example above ... if your average gross profit margin were 20%, and you were to discount your prices across the board by just 5%, then your sales team would need to increase total sales by a substantial 33% to get back to where you would have been with normal undiscounted sales.  Furthermore, you would need to be convinced that the price discount would not only generate 33% more sales; but also that your current staffing and infrastructure could handle the increased workload without incurring extra costs.

On the upside ... increasing prices by 5% ...

For example above ... if your average gross profit margin were 20%, and you were to increase your prices across the board by just 5%, then your sales team could sell 20% less by total sales $ volume before impacting your profitability.  The implication is that you could have fewer sales staff for the same result, or they could in fact earn more in the same available time.  Lower volumes would also put less stress on your other staffing and infrastructure.

How many customers would notice a 5% price rise?  Probably not as many as you think, provided the marketing and selling is done correctly.

If you're not prepared to increase prices for fear of losing business, then you should look again at the table above!  And/or take a very serious look at the 'value proposition' and 'positioning' of your business.  Or maybe your sales methods need attention?

Certainly the theory is simpler than the implementation; but armed with clever prediction models and integrated sales and marketing coaching from Edensilk, your business could be in a class of its own.  You will be empowered to increase sales with maximum improvement to your bottom line.

In practice you will have many different margins for many different products and services, and planning a price change with its flow on effects is much more involved than simply referring to the table above.  That’s what Edensilk does so well ... we show you how to make effective improvements to your sophisticated business in ways that are simple to implement.

You might also remember that your suppliers have margins and prices to manage too, so if you let your margins be eroded by supplier price increases, this could be costing you much more than you think!

Do you have ready access to the data and the tools to calculate and monitor all of these interrelated affects?

It's vital that you have an easy to use reporting system that keeps you informed of the margin that you are achieving today and compares it to that which you set as a target or benchmark.  Edensilk consultants have a great deal of experience in showing how this can be readily and consistently achieved.

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