Photo credit: Jason Costanza on Flickr
I think one of the most looked at areas of business strategy in large cap companies is product pricing.
In my travels as Saasu’s CEO I meet a lot of small businesses, and quite often they tell me about their strategy and are curious what I think of it. The usual things come up like sales, marketing and raising capital. Very rarely (read almost never) does pricing theory and strategy come up. If I ask about pricing strategy usually it’s a response like “Yeah, I should look at that”.
I have a feeling there isn’t much conversation internally, or with their advisors, in this area.
Pricing to me is one of the most important areas of focus. You all know as accountants how small changes in prices and costs can have large impacts on profitability. I think many business owners would love at least this 101 lesson in pricing theory if you suspect they don’t know about it. I always suggest they start a spreadsheet if they have some skills and attempt to work out margins, segments of buyers, profitable products/services and the ones they think they are losing money on. Then I then recommend they go to their advisor (you) armed with their first draft of their pricing model spreadsheet. You can help get it to the next level for them, show them the blindspots, correct calculations, etc. This gets them looking at the numbers and continuing the conversation with you.
Pricing adjustments are a good conversation at EOFY. There is some expectation that inflation warrants changes once a year so customers already have some expectation that prices might rise. That being said, dropping prices can also be the right outcome, and many industries we are exposed to are headed in that direction. The commodification status of the industry product or services sets the tone for price hikes versus cuts from what we are seeing.
Pricing strategy is always a stimulating conversation and can reap some big quick wins for your clients. At the end of the day it elevates the advisory side of your service and opens the door to other strategic conversations you can have with them.
This article was cross-posted on WhatProduct as part of a regular contribution sharing our vendor insight into the industry.