Does Your Portco Have a Pricing Problem?

Symptom (noun): a sign or the existence of something, especially of an undesirable situation.

We all know what symptoms are. While the term is often used in the health and wellness field, it also has a place in your business. There are symptoms felt across your portfolio companies every day, ranging from minor to major, that hint at the existence of something deeper.

Some of the most prevalent symptoms we see across a wide variety of manufacturers and distributors have one root cause in common: pricing. Pricing problems can be extremely difficult to identify on their own, but starting by probing into their symptoms can make it easier to connect the dots.

Over the last 18 years working directly with manufacturers and distributors, we’ve discovered several prominent symptoms of pricing problems. Now we’re sharing them, including questions to ask along the way, so you can help your companies recognize and begin to solve their pricing problems.

Financial Impact

One of the most effective ways to assess financial performance is through profit change over time with granular comparisons. This is especially true for bigger companies in your portfolio, where it’s more difficult to glean insights from looking at large sums of total profit year over year.

Instead, start by comparing profits at each company from top customer or product segments. For example, how profitable were the top 50 customers this year compared to last year? Or if a company is more product-line focused, what profitability changes did their top product category experience year over year or quarter over quarter?

By examining different segments over time, you can help them isolate and identify the levers behind significant profitability changes and confirm if pricing is the primary culprit.

High-Level Financial Decline

Questions to ask your portco:

• Are our margins shrinking?
• Are we keeping up with inflation or deflation?

Starting with the most readily apparent, if there are even high-level financial struggles, it’s time to look at pricing. Maybe prices were raised with inflation, but now with pockets of deflation, some in your portfolio may be giving unnecessary concessions back to customers who are willing to pay.

Regardless of market conditions, margins are the best reference point to help determine if pricing is the root cause.

Volume and Market Share

Questions to ask your portco:

• Are we losing ground in the market?
• Is volume fluctuating enough to affect revenue consistently?

Regardless of how your companies track volume and market share, persistent changes can be an indicator of pricing problems. Inconsistent pricing is a common cause – pricing your portcos out of the market, over-discounting, or both – and can compound over time if erratic pricing adjustments are made to compensate for volume changes.

Sales Effectiveness

In most cases, the sales organization doesn’t need more training or a new CRM to improve their effectiveness. It’s more likely that issues with sales effectiveness are another symptom of a pricing problem.

Deal Cycle Time

Questions to ask your portco:

• What is our standard deal cycle time (from opportunity to close)?
• Is our standard deal cycle time extending? If so, to what extent?

If the answer to the second question is yes, pricing isn’t always the culprit – but it’s often a strong contributing factor. Long or extending deal cycle times can be a symptom of not knowing the right price.

The companies across your portfolio have many different products and customers, so one inflexible price won’t work across the board, but having a more accurate starting place cuts down the time it takes to quote and close deals significantly.

It takes time to go back and forth between potential customers and approvals, which adds up. By no fault of sales reps, this can become a vicious cycle that depletes trust in the pricing itself, not to mention buy-in from sales.

Sales Confidence and Buy-In

Questions to ask your portco:

• How often do your sales reps think your price isn’t competitive?
• What percentage of total deals are you confident in having the right price for?

It’s rare when sales reps report back that prices are too low. But if sales leaders are reporting persistent debate from those who are closest to the market, that’s another telltale symptom of pricing problems on the way.

Custom Quotes and Special Agreements

Questions to ask your portco:

• How many of our customers have custom quotes or special agreements?
• Have at least 10 deals for a given product varied significantly in price?

We call this a price exception. When every customer gets a special price, your companies can quickly end up with substantial variability between what similar customers are paying for similar products. Plotting these prices reveals an uncorrelated scattershot, where customer segmentation makes it easy to see just how much pricing differs when all other customer attributes are related.

If the price of a top selling product ranges from $25 to $125, how can all those prices be the right price?

Operations

Pricing updates are time-consuming, error-prone, and can be made more difficult by system limitations. And a high volume of custom quotes and special agreements only adds to the time and resources required for individual updates.

Price Management and Execution

Questions to ask your portco:

• Who is responsible for updating prices when they change? Is it a manual process?
• How much time and other resources is it taking to keep pricing up to date?

This pricing problem pain becomes more pronounced the more SKUs a given company has. Take 75,000 SKUs, for example. If someone or a small team within your portco must manually upload prices every time they change, that process can take weeks. And however long it takes, their sales team is using outdated pricing in the meantime.

Wrapping Up

Being able to identify and address the symptoms of pricing problems is critical to sustainable profitability across your portfolio. By taking a closer look below the surface of financial performance, sales effectiveness, and pricing operations, you can help your companies pinpoint the root cause of complex pricing problems.

Don’t let these symptoms fester. Take control of the efficiency and profitability of your entire portfolio with a comprehensive pricing strategy.

If a portco came to mind while you were reading, or if you suspect others to have lingering pricing problems and want an expert opinion, book time with our team here.