Are you or your customers or competitors in control of your pricing?
When business owners look to improve profitability, they often focus on increasing sales or reducing costs. Yet one of the biggest opportunities is often sitting unnoticed: pricing.
Whether you're a business with five customers or five hundred, a well-managed pricing strategy can transform profitability without selling a single extra product or service. The problem is that many businesses don't actually control their pricing. Instead, it's controlled by customers, competitors, history or even individual salespeople.
Here are seven areas every business should regularly review:
Know your margin by customer
Not all customers are equally profitable. Some generate healthy margins and are easy to work with, while others negotiate aggressively, consume disproportionate resource and contribute very little to the bottom line. Understanding profitability by customer helps you decide who you want to grow with and where pricing needs to change.
Know your margin by product or service
Many businesses know which products generate the most revenue, but surprisingly few know which generate the greatest profit. Understanding product and service profitability helps you decide where to invest, where to grow and where prices may need reviewing.
Price for the value you provide — not simply to win the order
Every business should know the point at which a deal stops making commercial sense. Knowing your minimum acceptable margin gives you confidence to negotiate on facts rather than emotion and helps protect long-term profitability.
Know your red lines
Every business should know the point at which a deal stops making commercial sense. Knowing your minimum acceptable margin gives you confidence to negotiate on facts rather than emotion and helps protect long-term profitability. Knowing your red line makes negotiation and price setting easier. It's okay to say no. It's okay to close accounts.
Stay in control of your pricing
Ask yourself: if you wanted to increase prices by 4% tomorrow, could you? Many businesses can't because prices have evolved through years of exceptions and manual adjustments. Good systems allow prices to be reviewed and updated by customer, product or service quickly and consistently. As an owner, you need to stay in control.
Who is really setting your prices?
If customers, competitors or individual salespeople dictate your prices, you don't have a pricing strategy—you have a reaction strategy. Competitors should inform your thinking, not determine it. Your business should remain in control of its commercial direction.
Do your sales team understand commercial profitability?
Winning orders is only half the job. Salespeople need to understand the true cost of delivering what they've promised. It's also important to look at any impact on operations or support in this context. The price may seem fine at the top level, but if it creates excess disruption and noise in your business, it could well mean the full cost to serve the customer exceed the price you are getting.
One technique I've always found effective is giving sales managers responsibility for account profitability as well as revenue. It's fine to let them see you cost prices and make commercial decisions, so long as you support that. Another technique I've used is to run customer reviews with sales people and target them with closing loss making accounts. It changes behaviours and encourages commercially sound decisions.
Pricing Is a Commercial Strategy, Not an Administrative Task
The strongest businesses understand customer profitability, product profitability, commercial boundaries and pricing governance. They have systems that allow pricing to be reviewed efficiently and ensure everyone involved in selling understands the commercial consequences of every deal.
At Speare Consulting, we help owner-managed businesses develop practical pricing strategies that improve profitability without unnecessary complexity. Whether you're reviewing your current pricing, strengthening commercial controls or preparing your business for growth or exit, taking control of pricing is one of the highest-return improvements you can make.
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