Waterfall Design: Where to Begin?

When designing a price/margin waterfall one of the first major design decisions you’ll face is deciding where to begin your waterfall. For many companies this means list price, for others a “base price” or “gross price” is a more appropriate starting point. Even if list pricing is available it might not be an appropriate starting point, as there are several issues that come into play. There are a few simple questions companies can answer to help them determine if starting with list price is right for them.

Are list prices maintained for all products?
Having list prices available for some but not all products creates a number of headaches. In addition to having to decide how to populate the list price bucket for products with no list prices in place, you now have two different starting points in your waterfall as some start with list and others start with base price. Organizational change is hard enough – unless list price data is especially meaningful for the subset of data with list pricing in place it might be best to have all waterfalls begin at the same point to minimize confusion for new users.

If list prices are maintained – are they real?When companies announce 2-5% or 5-10% price increases, list prices are usually raised the full 5% or 10% respectively. Repeat this twice a year for a few years and you soon have list prices entering a new stratosphere from actual customer pricing. If list prices are more than 2x your average price, it’s best to begin with a more realistic price point as you don’t want to lose credibility with your first waterfall bucket.

Is anyone actually paying list?
If you do have small customers or distribution partners paying list or a standard discount from list, you will probably want to run some form of analytics to ensure prices are moving with list accordingly. In this case including list pricing in the waterfall might be important.

One final thought to remember is that your price/margin waterfall data can be different from your price/margin waterfall analytical graph. If list pricing is important for some business but a distraction to other segments, you can always include list price in your actual data so users have access to it if needed, but begin your waterfall chart with base price as to not cloud the data for other users.

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