Industral Supplies Companies Leaves Cost-Plus Pricing Behind

The outdated cost-plus pricing approach was proving detrimental as the company expanded through acquisitions, resulting in diminished market relevance and declining profits. By shifting to a new segmentation model and market-based pricing approach, the company unlocked 219 basis points (bps) of incremental margin, achieving growth targets without impacting volume.

Challenges

• The company’s rapid growth through acquisitions allowed for lower costs due to increased purchasing power. However, the cost-plus pricing model inadvertently led to lower prices, resulting in $3M in lost profit from lower prices in 2024 alone.
• This naïve cost-plus approach overlooked local market nuances, causing sales reps to lose confidence in the pricing model and limiting their trust in pricing decisions.
• As the company aimed to boost its bottom line while continuing its growth trajectory, a more effective pricing strategy was imperative.

Solution 

The company partnered with Revenue Analytics to implement its Pricing-as-a-Service solution. Key steps included:

• Developing a data-driven customer segmentation to enable more targeted sales and pricing efforts.
• Configuring the pricing engine to deliver location-specific, market-based price guidance for every customer, product, and deal.
• Implementing a performance dashboard that continually measured pricing impact, compliance, and next pricing actions to take.