6 signs you have a problem with your pricing — and how to fix them

Imagine a way to boost your commercial operation’s profitability — without needing to spend working capital, run your factory more, or go on a hiring spree.

It’s not just a pie-in-the-sky wish.

In fact, improving your bottom line doesn’t have to rely solely on a “sell more” strategy. The key is to optimize your internal pricing processes. Without pricing effectiveness, there’s no reaching your profitability potential.

When you can effectively dial in your ratio of market funding to volume/price, you have an easy lever to pull to improve profitability … without actually having to move more volume.

But before you develop or optimize a new pricing process, you need to figure out where the snags are in your current one.

Here are six signs you might have a problem with your pricing process or workflow in your commercial operation.

1. Your sales team thinks in terms of gross revenue — not net revenue

Too many organizations think that revenue = list prices times volume sold. And sales teams often make decisions based on that gross revenue figure.

But that’s missing a critical piece of the puzzle.

In reality, true revenue = list price times volume sold minus rebates offered. For some organizations, that extra line item could make a massive difference. Are you even aware how many dollars fly out the door each year from rebates? Is that figure factored into sales team decision-making?

When your sales team starts calculating net revenues instead — then offers pricing based on those numbers — your profitability will likely improve.

2. The phrase “good partner” is often used as a reason for pricing adjustments

Stop us if you’ve heard this one before: “This customer is a good partner — so we still need to offer them X rebate, even if they didn’t meet the requirements.”

Too often, sales teams are giving away more money than they actually need to. Chances are, they’re probably pretty rarely at actual risk of losing the relationship if they don’t hand over the rebate.

These giveaways often happen at the local level and are usually totally unregulated. But this can hurt organizational strategic objectives — and be a big hit to the bottom line.

3. You have “black box” programs

Many commercial operations have a pot of money they plan to spend on rebate checks to customers — then don’t actually share with customers the list of requirements to earn that money. But even beyond customer confusion, this can be a compliance nightmare.

Arbitrarily handing away money without clearly documented rules is usually the sign of a larger problem: a lack of proactive strategy. For example, instead of handing away a bunch of cash in Q4 based on a set of behaviors, turn those parameters into a pre-order incentive for next season.

4. It takes a long time to finalize the total dollars owed against a particular program class

Rebate calculations should happen continuously and should always be up-to-date. But organizations often spend weeks finalizing program numbers. And the later it takes to come up with this number, the less likely it is that that program will actually drive the behavior you want it to drive.

With more instant calculations, you empower your organization to be more proactive about improving its profitability.

5. Your programs are calculated by salespeople and spreadsheets — not software

You have a great team. But that talent should be put to use doing what humans are best at: building and maintaining relationships, focusing on strategic work, etc. Instead, too many employees spend their hours manually calculating program data and using a complex web of spreadsheets to track everything. This leads to:

• Disorganized workflows

• Delays in data finalization

• Confusing parameters

• Lack of communication to customers

• Compliance problems

• Rules that aren’t documented

Now think about it: do any of these things help your profitability? Or are they holding your organization back from its full potential?

6. Issues with customer success frequently pop up

Not all pricing process hang-ups show up solely internally. They often bleed into external relationships too.

One obvious sign you have a pricing issue is when a customer comes back to you and says their rebate payments don’t match with what they were told they would receive. This usually means a salesperson made certain commitments to them throughout the year. But they either didn’t document those promises, forgot about them or didn’t clearly explain (or even know) the parameters that customer would have to hit in order to get $X from the program.

Messy, needless to say.

If you’re still unsure of the effectiveness of your market funding process…

Answer these questions:

• Are program targets and terms shared with customers?

• Are those targets and terms shared within 30 days of the program starting?

• Do customers understand the targets and terms?

• Are earnings calculated throughout the season?

• What percentage of each program is accommodations?

If you’re not sure about any of these, that’s the part of your workflow that’s probably a good place to start improving or optimizing.

So what do you do if you have one of these process problems?

The good news is your internal systems are far from static. You can inject a little more order into your pricing workflow — and reap the organizational benefits.

Here are a few best practices to keep in mind as you work to replace outdated or ineffective pricing processes — and improve your profitability:

1. Choose a pricing strategy — then stick with it

Most organizations in the Ag input supply chain operate with a mix of pricing strategies. Maybe they do cost-plus pricing most of the time, but throw in a dash of market-based pricing occasionally. Maybe there’s some pricing based on customer segmentation — but they haven’t yet rolled this out to all geographies or products.

The pricing strategy status quo in this industry is often piecemeal. But you’re better off picking a lane and staying there. Sticking with one pricing strategy throughout the season will keep your salespeople organized, your customers informed, and everyone moving in the same direction.

2. Clarify who has authority to manage accommodations

When every salesperson thinks they’re a pricing manager — and that they have the power to offer whatever pricing concessions or rebate accommodations they want — things get confusing quickly. (Not to mention more dollars fly out the door much faster.)

Whatever pricing strategy you choose, make sure the outline of that strategy includes clear direction about who can make price accommodations — and under what circumstances.

3. Allow software to take on more of the workload

Technology can help you drive out variation, confusion, and disorganization from your processes. Integrating software that optimizes your pricing process can mean the end of banking your organization’s profitability on the margin of human error (and human decision-making).

But not all technology is created equal. To adequately fill the gaps that the above process problems create, you need software that provides:

• Proper workflows

• Compliance around configuration

• The ability to clearly document rules

• Internal publishing capability

• A central, user-friendly interface

• The ability to automatically calculate earnings throughout the season

If you’re ready to shore up your pricing processes using software that was built for commercial pricing programs, contact the Smartwyre team.