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Pricing Challenge: Price Leaks

Posted by Chris Jellen

Identify Price Leaks, Increase Profitability

Welcome to INSIGHT2PROFIT’s 2019 Pricing Challenge! Each month we’ll discuss a common pricing challenge faced by businesses and provide some tips to help improve your profitability.

First up, let’s talk about price leaks. You’ve set your product pricing, but after considerations like discounts, freight costs, program allowances, rebates and payment terms, how much of that price actually reaches your bottom line? Today we’ll look at how just one factor – expedited orders – can dip into your profit margin and how you can quickly address that challenge.

Has this ever happened to you? Your customer calls and says they need their product in three days instead of the usual two weeks. You jump through hoops to make it happen – interrupt your production cycle, delay other customers’ orders, pay extra for freight, pay overtime – and you do it for free to keep your customer happy. You just offered your customer tremendous value; you should be getting paid for it. How might you go about making that happen?

First of all, ensure your customers have a clear understanding of what your standard lead time is. If they ask about expediting, and your production team says it’s feasible, let your customer know there will be an associated surcharge.

Based on our historical tracking of expedited order requests, one of two things will happen:

  1. You’ll save money. When faced with a fee, about half of your customers will decide they don’t actually need the order that quickly and can deal with the regular lead time. You neither disrupted production nor incurred additional expenses to meet a need that wasn’t real.
  2. You’ll make money. The other half of your customers will appreciate that you offer the option to expedite orders and will gladly pay the surcharge, because it’s a small price to pay for being able to meet their critical need.

What practices could you adjust to stop price leaks and have an immediate impact on your company’s profitability? Download our 50+ Most Common Price Leaks Infographic to identify other areas in which you might be leaving money on the table instead of putting it in your pocket.

What’s your pricing challenge? 

Topics: For Pricing Managers , Pricing Strategy

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