Buy-and-Build Value Creation Killer: Cost+ Pricing

Buy-and-build is a tried-and-true value creation strategy. No doubt it’ll boost revenue while enabling strategic expansion into new markets and categories. While the strategy grows the platform’s top line, the bottom line will suffer if the company uses a Cost+ pricing strategy. As the platform grows, it will become more efficient and command better costs from its suppliers, thereby reducing its own input costs.

Left unadjusted, Cost+ pricing inadvertently passes those cost savings back to the customer in the form of lower prices (because price is set as a markup on cost, and costs have decreased). Margin rates will stay the same, but margin dollars will drop.

Is Cost+ pricing costing you margin dollars? Book an intro with a PE pricing expert to learn more about reclaiming lost profit and protecting margins.