Pricing is the most powerful and immediate lever you have to increase revenue or profit, improve profit margin, or grow volume. A five percent increase in price realization makes a larger contribution to profit than a 5% increase in revenue or a 5% reduction in costs. And it makes this contribution immediately. You don't have to work for the costs to work their way through the system.
The most successful companies excel at pricing. Do you? There are some key business questions that help you to answer this question and find the leverage points you can use to improve your pricing.
Key Business Questions You Should be Able to Answer on Pricing
- Do you have pricing power? If not, how can you get it?
“The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business.” Warren Buffet
- Are your customers able to connect your price to the value they receive? How have you tested this?
The primary reason customers push back on your pricing as they fail to connect it with value. This is not their fault. It is up to you to frame this and lead them to an understanding of value as part of their buying process.
- Does your pricing model encourage the forms of use that help customers get value or does it discourage this?
We are seeing a lot of innovation on pricing models. This is good. But some of these pricing models actually discourage the behaviors that lead to value creation for the client. The result will be lower usage and higher churn. Not so good. We can tell you if this is happening to you.
- Are the roles of each tier in your pricing offer well defined? Are they actually performing the intended role?
In a good pricing architecture each offer has a specific role to play. It is not enough to have clear buyer personas (though this is important). You need to design in and track the way each tier contributes to the other tiers and to your overall revenue.
- Where do you have profit leaks? How can you plug them?
Almost every company has price leaks that drain away profit. Do you know where your profit leaks are? What are you doing to plug them?
Ibbaka applies a powerful combination of user experience analysis, value-based pricing and data analysis to answer these questions with you.
The result is an immediate increase in business performance.