How to Drive 300 Basis Points in Margin
You’ve just walked out of the meeting and your head is spinning…the board wants 300 basis points!?
In this market?
You take a deep breath and do a mental inventory of cost-cutting opportunities:
- Are you driving greater efficiencies inside plants? Yes.
- Are you streamlining back-office operations? Yes.
- Have you negotiated cost out of supplier relationships? Yes.
You’ve focused most of your time and attention on cost-cutting, and for now you feel like you’ve done about all you can.
So, if you can’t cut costs, it’s time to look at your prices again—that much is clear.
You know what you need to do, so why does driving aggressive, profitable growth—the 300 basis points the board wants—still seem like such a heavy lift?
The Problems with Pricing
Simply put, pricing hasn’t always worked for you.
It’s a safe bet one or more of these pricing challenges hits close to home:
- You could increase prices for all new customers coming in the door. It’s a very competitive market, however, so you know you’ll lose some deals with a price hike. It’s just a question of how many you’ll lose.
- You could incentivize the sales team to sell just the higher margin products. When you’ve run this play before, you’ve seen some success, but most of it was cannibalized by the cost of incentives, eroding the value of the approach. What’s more, you lost deals—some big—because you weren’t pushing your best-loved products.
- You could focus the team’s sales efforts on going after the big fish—the highest-value customer segments. When you’ve gone after the higher-value targets before, you’ve found out that they weren’t all higher value after all. And focusing your team on these accounts came at the expense of your other sales initiatives, stalling revenue opportunities you would have otherwise had.
A Better Approach to Pricing
You’re not alone. Most companies have struggled with these pricing problems for a long time.
What’s going to make you win while they falter?
Without a doubt, pricing is one of the most powerful levers to drive profitable growth. The right approach makes all the difference.
What is the right approach?
You’re correct in thinking that increasing price on new customers and focusing on higher-margin products and customers is the way to go to drive profit.
BUT the problems you’ve experienced occur when you use a broad brush. Not all new customers should have the price hike. Not all higher-margin products should be pushed, and so forth.
What works very well—and delivers significant gains like 300 basis points—is when pricing is prescribed at the deal level. What’s powerful is when you know the right customers and can offer them the right product at the right price.
For example, we helped one of the world’s leading components and parts companies drive 310 basis points of margin with targeted price guidance that’s winning more deals at higher rates.
What’s more, the better pricing has reduced sales costs 12% through faster deal cycles, fewer price exceptions, and reduced sales rep administrative time.
Read this case study to learn more.
And when you’re ready to answer the board’s call, and could use some help, just book some time with us and we’ll walk you through it.