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August 12, 2018
How Can the Discipline of Pricing Drive Improvement for Business Services Firms?
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Business service firms can make significant gains if they have pricing discipline, unfortunately most do not. In fact, 30% of companies reduce pricing by 10-24%. This variance in pricing leads to poor sales behaviors, customers who expect discounts and most importantly lower profits.
Pricing discipline is critical to sustainable, profitable growth and needs to be managed in a consistent manner. Discipline should not lax as the month ends, quarters close and fiscal year comes to an end.
For more on Pricing discipline and Price Governance, read this article titled, “The Importance of Price Governance in Capturing Enterprise Value.”
Download the Guide to Implementing Pricing Discipline to determine if you have a Pricing Discipline, or if you need to implement one.
Why Is a Lack of Pricing Discipline the Norm?
In essence, sales, leaders and executives typically have strong incentives for bookings. While there are limits, the practice of lowering prices causes 60% of companies to reduce their pricing on at least half their deals. The problem only gets as worse as the artificial deadlines of fiscal closes come closer.
This endless cycle has significant consequences.
What Are the Long-Term Negative Impacts Caused by Short Term Gains?
Sales reps will expect to be able to get price discounts through. As pressure mounts to close a deal, sales will know they have a lever to pull. This can become a part of the culture and become hard to break without a lot of training, coaxing and moaning from reps.
If competitors expect you to cut prices, they will likely do the same potentially creating a vicious cycle of downward pressure. This only exacerbates the problem.
A typical industry is tight knit with most job changes happening within the industry. This means the behaviors become known, expected and entrenched.
When starting from a lower base, let’s say 15%, that 15% will live when it comes time to upsell, renew and sell other products as that price point is now established. The long-term effect over a common 3-6 life time will continually show up in the bottom line.
Lack of pricing discipline only rewards customers who choose based on price. These typically low margin customers may already receive too much attention and consume valuable resources, sales selling time and customer service. Instead much better to find, win and focus on ideal customers who value the service being delivered.
Read this article for more on pricing programs: Don’t Stop Your Pricing Program After the Initial Improvement in EBIDTA.
You Can Implement Pricing Discipline and Improve Profits. Here’s How.
Learn more on Why Your Value-Based Pricing Strategy Isn’t Working
Pricing-Enhanced Personas, a Sales Leader’s Secret Weapon
Download the Guide to Implementing Pricing Discipline to determine if you have a Pricing Discipline, or if you need to implement one.
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