M50GrowCustomers & Sales· Module 6
Pricing
Prices are set by copying competitors and adding a margin. Discounts are given whenever a customer asks.
- Start
- Grow
- Fix
- Customers
- Finance
- Strategy
- ~5 min · Calculation
The business problem
Pricing is one of the most powerful profit levers and one of the least managed. Businesses underprice out of fear, discount inconsistently and rarely review prices when costs change. Salespeople give away margin to close deals.
Why it matters
A small improvement in price realisation often adds more to profit than a larger increase in volume. Pricing discipline also signals confidence in the value delivered.
What you will learn
- Distinguish cost-plus, competitor-based and value-based pricing
- Measure price realisation and discount leakage
- Set discount rules and authority
- Review prices when costs or value change
Core questions
- How do we set prices today?
- How much do we give away in discounts, and to whom?
- What is the customer's alternative, and what does it cost them?
- When did we last review our prices?
Work through the module
CaseWhat is happening?
Manufacturing, 60 people · Illustrative teaching case
A manufacturer's premium line shows the highest gross margin but causes most of the rework and delays. With its real costs included, its contribution is far lower. The line is repriced to reflect its complexity, and two variants are discontinued. Discount authority is limited to set bands.
Full teaching case: The Profitable Product That Should Be Killed
DecisionWhat does the leader need to decide?
Keep prices competitive and flexible, or price to value and control discounts?
FrameworkHow should they think about the problem?
Price realisation and the pricing waterfall
List price → discounts → rebates → free extras → payment terms cost → pocket price. The waterfall shows how much of the list price the business actually keeps, and where it leaks.
ToolWhat can they use?
Pricing waterfallCalculation
- Sample 50 recent invoices
- Record list price, discounts, extras and credit terms
- Calculate pocket price and leakage
- Set discount bands and approval levels
ApplicationHow does it apply to their business?
Apply it to your own business:
- Build a waterfall for your top product
- Calculate what a 2% price improvement would add to profit
- Identify the three largest sources of leakage
ImplementationWhat changes?
What should change in the business:
- Publish discount rules and authority limits
- Schedule price reviews at least annually
- Train sales to sell on value, not discount
ReviewDid it work?
How to tell whether the change worked:
- Has average price realisation improved?
- Have unauthorised discounts stopped?
- Did volume hold after price changes?
After this module you should be able to decide
Keep prices competitive and flexible, or price to value and control discounts?
And leave with: A pricing policy with discount limits and a review of your worst-priced lines.
Sequence · Customers & Sales