Pricing is the highest-leverage decision in your business. A 10% price increase on the same volume drops straight to the bottom line. Yet most companies set prices once and never revisit them — or worse, let sales teams discount without guardrails.
Why Pricing Is a Finance Problem
Pricing decisions require understanding: fully loaded cost per unit (not just COGS but allocated support, infrastructure, and overhead), contribution margin by product and segment, price elasticity (how volume changes with price), competitive positioning, and customer lifetime value at different price points.
None of these can be answered without solid financial analysis. Marketing sets positioning. Sales executes. Finance determines whether the economics actually work.
Three Pricing Frameworks
Cost-plus: Calculate your fully loaded cost and add a target margin. Simple but ignores what the market will bear. Best for commoditized offerings.
Value-based: Price based on the value delivered to the customer, not your cost. Requires understanding ROI from the customer’s perspective. Best for differentiated products and services.
Competitive: Price relative to alternatives. Useful when entering established markets. Risky as your only strategy because it leads to margin compression.
The Discount Problem
Uncontrolled discounting is the silent margin killer. A 15% discount requires a 21% volume increase to maintain the same gross profit. Most companies don’t track this. Set discount guidelines, track actual discounts by rep and deal, and review quarterly.
Do This Monday
- When did you last raise prices? If it’s been more than 12 months, model a 5-10% increase.
- Calculate your average discount rate. What’s the total revenue impact of all discounts given in the last quarter?
- Build a contribution margin analysis by product or service line. Are any below your target threshold?
If you want help optimizing your pricing strategy, book a free consultation →