5 pricing inefficiencies that are eroding your profits
As companies grow, their list of products and services can increase in size and complexity. It becomes progressively difficult to manage product pricing while preventing margin erosion. An effective pricing strategy is the most immediate way to impact revenue and margins. If you are selling without optimizing your pricing strategy, you are undoubtedly leaving money on the table. This webinar will look at how you can maximize revenue yield by fixing five specific pricing inefficiencies.
In this on-demand webinar, you’ll learn:
- Five pricing efficiency killers that erode margin, slow sales, and decrease deal volume
- Specific strategies to implement and overcome these inefficiencies
- The cost of not solving these problems today
How to identify and solve 5 common pricing inefficiencies
Inefficient pricing is one of the quickest ways to kill a company’s revenue. But many businesses fail to recognize the even most common pricing inefficiencies and — worse yet — don’t know how to optimize their pricing strategy to solve these problems.
In this webinar, Conga’s SVP of North America Sales, Micah Deriso, and Bread Financial’s Sr. Revenue Operations Manager, Asia Corbett, discuss the best ways to manage product pricing, the real-life impact of pricing inefficiencies, and process improvements that will help to preserve margin and maximize revenue.
4 signs you have pricing inefficiencies
No matter what industry you’re in, pricing inefficiencies are a fact of life—but recognizing them is often a challenge. Here are four common indicators that you may be dealing with pricing inefficiencies:
- Sales reps send quotes to customers with incorrect prices
- Customers contest invoicing costs or renewal pricing based on current contracts
- Deals are over-discounted, leaving you without margin
- Sales reps aren’t getting the necessary visibility during price negotiations
Pricing inefficiencies erode margins, slow sales, and decrease deal volume. The good news is, many of these issues can be resolved with improved framework and “guardrails” to help optimize pricing processes. Sellers generally want to do the right thing and provide a great customer experience; they just need the right tools to do their jobs effectively.
Let’s take a look at five common pricing problems—and how to solve them.
Pricing inefficiency #1: Inflexible price book
When it comes to pricing, a one-size-fits-all approach rarely works—especially if your business is spread across geographies and conducted through multiple channels. A rigid pricing strategy inevitably leads to lost deals—but too much flexibility leads to lost margin.
“When you look at how customers are trying to buy your products, you’ll often see a lot of similar requests. Tracking that data can help identify opportunities to change your price book,” said Micah Deriso. “That said, customers never seem to want the ‘standard’ deal and sales reps are very creative. When customers indicate they’re ready to purchase but they need a certain set of parameters, sales reps are probably going to say yes—and then figure out how to make it happen.”
Webinar poll response: 57% of respondents say their sales reps occasionally request price changes.
Solution #1: Dynamic pricing
The best solution is to give your sales reps the flexibility of dynamic pricing, so they have a variety of options and pricing models within a pre-approved framework. Smart pricing strategy lets you make informed, data-driven decisions to effectively manage:
Sales rep behavior, by empowering reps to make decisions that will help close deals while staying within approved parameters
Customer behavior, by offering smarter discounts aligned to customer needs without cutting into your margins
Market behavior, by creating pricing models that can flex within the market in response to economic conditions or market variation
Today’s buyers have an expectation of flexibility. They want to work with companies that can be dynamic and meet their individual needs—without slowing down deal velocity. The most successful companies are those who are best able to accommodate those needs.
Pricing inefficiency #2: SKU proliferation
SKUs tend to build up over time, as your product catalog grows and packaging options change. Having a lot of SKUs isn’t necessarily a bad thing, if they are created to meet customer demand. It only becomes a problem when you start to see “bloat” within the SKUs. For example:
- One-off SKUs being created for individual customers
- Bundles that reflect outdated offerings
- Promotions that contain inaccurate data
- Multiple SKUs for the same product, each with different information
SKU bloat can also be an indicator that sales reps have poor visibility into what products are available to sell, or what cross-sell and upsell opportunities exist. In this case, you might start to see reps selling the same configurations repeatedly or creating configurations that don’t work together when fulfilled.
Webinar poll response: Two-thirds of respondents say at least 33% of their available SKUs go unused.
Solution #2: SKU rationalization
Combatting SKU bloat effectively requires an intentional strategy for creating—and deprecating—product SKUs. Start by performing a thorough analysis to determine which SKUs are most used and most needed, with an emphasis on the value they provide. Keep in mind that some regions or customer segments may have different needs—which require different SKUs. Then start trimming the fat by eliminating unnecessary SKUs. Instead of fixed bundles, many organizations rely on SKU blocks—which means each element has an individual SKU, and groupings are nested within a larger SKU.
“SKU bloat is often a symptom of operational tech deficiencies,” said Asia Corbett. “If the operations team is going to support sales effectively, they can’t spend all their time cleaning up SKUs. They need tech that provides the proper governance to prevent excess SKUs from being created in the first place.”
Pricing inefficiency #3: Rogue discounts
When manual processes collide with business complexity, your bottom line suffers. Reps in a frenzy to close deals often give deep discounts that can damage your margin. Without the proper guardrails in place, deals can be subject to rogue discounting or inconsistent pricing across channels—and that lost revenue can add up quickly.
At the same time, getting deal approval can be a slow and tedious process. Customers want speed, which leads reps to try and circumvent the process altogether.
“In the heat of negotiations, it’s easy for sales reps to find themselves behind the margin—often without even realizing it,” said Micah. “That’s why it’s so important to give them the tools that make it easy to discount appropriately without cutting into margin or over-promising to the customer.”
Webinar poll response: 77% of respondents don’t want to discount deals—but feel they need to in order to close a deal
Solution #3: Discount guardrails
Discounting is sometimes necessary to close a deal, retain a customer, or accelerate a timeline—especially at year-end or quarter-end. To keep those discounts in check and preserve your margin, establish built-in rules that tell sales reps how they are allowed to discount and what process must be followed for discounts that fall outside these parameters.
Make these guardrails specific by using your pipeline data to find the most successful price points in each industry, vertical, segment, and company size. Empowering your sales reps with the most profitable deal structures will keep them selling successfully for the long term.
Many businesses also implement a Deal Desk function to manage deals from start to finish. With the right tools and automation a Deal Desk can help keep deals moving along, while providing visibility into deal status and keeping discounts within established guidelines.
Pricing inefficiency #4: Uncontrolled promotions
When you need to motivate sellers or stimulate sales for certain products, promotional programs can create valuable incentives. But promotions are notoriously difficult to implement and manage, as there are many kinds of promotional strategies—including flat amount, percentage-based, volume-based, and revenue-based. Without proper management, promotions can contribute to margin erosion because it’s easy to inadvertently apply an unnecessary or outdated promotion—or layer a promotion on top of other discounts.
“Marketing is part of the revenue-generating engine, and marketing campaigns or promotions can help push deals across the finish line,” said Asia. “But keeping sales and marketing aligned is critical to preserving margins. You don’t want marketing to run a promotion at the same time sales is doing a discount.”
Webinar poll response: Respondents say the two most popular types of promotions are percentage-based and volume-based.
Solution #4: Promotion management
By gathering and analyzing data on all selling activities, companies can identify which incentives are most likely to influence buyer behavior among target audiences. That’s why it’s so important to continually track the success of your selling efforts.
Promotions stimulate demand and attract prospects to different channels, so make sure you have a system in place to capitalize on that demand without diminishing margins.
Pricing inefficiency #5: Unanalyzed pricing data
Approaching deals as a single point transaction is among the biggest mistakes you can make. Every deal provides a wealth of data about customer segments, customer motivations, transaction volumes, successful (and unsuccessful) incentives, and more. Most companies collect and maintain this data, but few take the next step: actually analyzing this data and using it to optimize pricing strategy.
Webinar poll response: 54% of respondents say they review pricing data once a year.
Solution #5: Optimized pricing strategy
Insights from deal data can provide answers a variety of important questions. For example:
- What configurations typically sell together, and at what price points?
- Can we deliver standard, reusable configurations and discounts to accelerate quote generation?
- How long does it take to turn around a quote approval?
- Are we doing low margin deals just to win business? Are those deals worthwhile?
With answers to these and other questions, you can optimize pricing structure and measure market performance, to identify opportunities for continuous improvement in your selling processes.
Solving pricing inefficiencies
A robust configure, price, and quote solution—like Conga CPQ—can help solve these five pricing inefficiencies and so much more. If you’re interested in learning more about CPQ, check out our Ultimate Guide to CPQ.