Many companies have kept up with rising material, labor, and transportation costs by passing through supplier price increases. This was a significant area of focus for many firms in 2022 and 2023. But if passing-through supplier price increases was your only activity last year, your pricing processes and strategy need more attention. After all, profit margins get squeezed when prices don’t keep up with rising costs. You may be overlooking hidden 2024 profit potential by not taking some key actions early this year.
1. Process Makeover
Pricing processes are often overly complex due to multiple price lists, variations in cost systems, and hand-offs between functions and departments. Many teams groan when their leaders insist on making pricing changes because of the headaches caused by these complex processes. Streamlining pricing processes will reduce errors and rework making it easier to take price changes as needed.
2. Price Tweaks, Margin Boosts
Did you know a 1% price increase can boost margins by 11%? Small price changes can increase EBITDA more significantly than reducing variable costs, covering more fixed costs, or even gaining incremental volume. Yes, small adjustments can unleash significant value. Raising prices on zero-margin or low-margin products not only improves their margins, but also can help move customers to higher-volume products that offer more operating efficiencies.
3. Discounting Dilemmas
Discounts seem tempting to gain added volume, but they have an outsized effect on margins. A 2% price discount might require a 4% volume climb just to maintain your profit goals. When your sales manager asks for that extra 3% customer discount, ask her if she can deliver a 6% volume increase. For many businesses, twice the volume increase is needed to break even on price discounts. Consider targeted promotions for bounded periods of time or bundled product discounts as a way to sweeten the deal without locking in long-term customer discounts.
4. Sales or the Customer: Who’s Really Afraid of the Higher Price?
It’s tempting to assume customers balk at higher prices, but the truth is, salespeople often harbor stronger reservations about selling at premium rates than customers do to buying. Empower your sales team with the confidence and knowledge to champion your value proposition. Remember, a well-articulated story about the benefits you offer can turn price apprehension into enthusiasm. Provide your sales team with comprehensive value-selling training company’s value proposition. Equip them with tools and resources to effectively communicate the benefits of your premium pricing to customers. This empowers your salesforce to become champions of your strategic pricing initiatives.
5. Beyond the Price Tag
Price isn’t the king of the purchase decision. Quality, delivery, and top-notch support often hold the crown. This means delivering better quality products, shorter lead times, and better technical support compared to your competition can earn you premium pricing. Implement pricing strategies that capitalize on the total value proposition of your product or service, including superior quality, reliable delivery, and exceptional customer support. This aligns with a strategic pricing approach that focuses on value perception rather than solely on price.
6. Strategic Pricing
Do you have an actual price strategy, or do you just follow a cost-plus pricing model? Do you spend time with customers to truly discover how they value your products compared to their alternatives? You may be delivering more value than you think. Don’t be afraid to consider non-traditional pricing models. Subscription pricing, variable price structures, and segmentation-based pricing can unlock unforeseen margin potential, propelling your business to new heights.
These six concepts paint a clear picture: strategic pricing is a game-changer that can deliver significant EBITDA growth in 2024. At NEXT LEVEL Partners® LLC, we have the pricing strategy expertise you need to navigate this dynamic landscape. We help clients tailor their strategic pricing initiatives to their unique business, streamline existing processes, and unlock the full value of their products and services.
Remember: Pricing, Strategic Pricing, Price Strategy, Pricing Strategy – these aren’t just keywords, they’re the keys to unlocking your full potential. This year don’t settle for pricing as an afterthought. Let it be a key initiative for driving growth and maximizing margins. Contact NEXT LEVEL Partners today and discover how strategic pricing can fuel your success.
