The Best Time to Fix Your Pricing Mistakes

Very early on in our career we were meeting with a sales rep to review potential areas for pricing improvement in his account base when something surprised us. We had found a few customers receiving pricing far below levels of comparable customers, and recommended he institute a 5% price increase on 4-5 of his 20 customers to help close the gap because we were confident those customers would not be able to get similar pricing elsewhere given their size. The account manager actually agreed wholeheartedly with the findings but had a request – he wanted to raise pricing for all 20 of his customers instead.

Normally account managers are less than enthused to receive instructions to raise pricing, so we were surprised to hear one volunteer to push pricing everywhere. His reasoning soon made sense though, as he detailed how he had a much easier sell with customers when he could explain that everyone was getting a price increase, not just them. Further pricing engagements confirmed this account manager’s preference – while some have no problem walking into a customer and telling them that their price just isn’t working anymore, the overwhelming majority prefer some sort of cover and would prefer to push pricing across the board at the same time – with our without a publicly released price increase notice.

To get around this problem we recommend that clients add a few steps to their normal price increase progress. Instead of instituting 3% increases across the board, organizations should review each customer/product price and calculate things like how the customer price compares to average pricing for customers their size, how much raw materials or other costs may have changed, etc. Then by announcing a 3-7% price increase, companies have the flexibility of trying to fix previous mistakes by pushing for a few additional % points in those situations where pricing is out of line today.

Identifying areas for improvement is an important step in creating value from pricing, but making sure that these opportunities are seized is just as important. For more information on how to make sure the value you identify makes it to your bottom line, please contact us anytime.