Pricing sets the profitability table for a corporation
Pricing sets the profitability table for a corporation. If it is not done correctly, no amount of cost cutting will be able to make things right.
It was obvious that my client had a profitability issue, more specifically, a Gross Margin issue. They were pricing to compete on cost, and they were a high-value solution for their market. The result?! Their costs were high and their profits low to non-existent.
It’s always easy to compete on price. The lowest price wins. I’ve been in many situations like this where it is an auction….the lowest price is awarded the job. There is nothing wrong with this business model, but you’d better make sure you are one of the lowest cost producers if you are going to play in this game.
Yes, selling value is more work than simply dropping the price, but it can be so much more rewarding financially.
It requires you to understand what is really driving your industry, but more specifically, your client’s business and sourcing decision. This is not a one-size-fits-all situation.
Selling value allows you to reap the rewards of the work you have put into your solution and reimburses you for investments you’ve made in support staff and development to position yourself in the marketplace.
Here are some realities on pricing products and services to consider:
- Pricing reflects the value you deliver to the marketplace and the marketplace’s perception of your organization. Make sure you are standing up for the value you deliver.
- Pricing is not a cookbook, one-size-fits-all. If this is how you price today, you need to make some adjustments to take advantage of pricing opportunities.
- It’s easy to compete based on price.
- Strong sales teams will devote significant efforts to selling based on value. In larger organizations, someone from the financial team may be helpful in generating the details needed to justify the value you are delivering.
- Fear, Uncertainty, and Doubt (F.U.D.) can be helpful tools in the value-selling process.
- Value can always be quantified. Remember this.
Pricing is the single most important detail that will define the profitability of an organization or business unit. Make sure you give it the appropriate amount of thought and time.
