PricingKC, LLC
pricing bridge analyzer
Measuring pricing performance seems easy enough. Divide sales by volume to arrive at an average selling price for the current financial period and do the same for the prior financial period. Subtract the two values and multiple by the current period volume. But in many organizations, this simplistic calculation can be very misleading.
Three customers buy two products. Top down price calculation indicates price contraction. In reality, pricing increased on all products to all customers, but the mix changed.
Customers may possibly be trading down because of the price increase, but this assumes these two products are close substitutes with one another. Other market forces may be at work.
To add to the confusion, traditional pricing methods can lead to extreme changes not based in reality in most organizations. Take an example of a customer spot buying a product at a high price in Year 1 with a significant increase in volume in Year 2. There are many cases of sales team winning new contracts with new customers, but this new customer had purchased the product at a non-contract price in the prior year.
Adjusting for this not-so-unusual instance more accurately identifies the customer as a win, and therefore, pricing is compared to other like customers to better determine if pricing is accretive or dilutive.
Finally, once adjustments are made, true pricing performance can be quickly and accurately tracked by customer type and product type with customers identified as wins, losses (churn), and organic.
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WIN – How aggressive is the organization acquiring new customers?
ORGANIC – Are sales teams successfully implementing price increases where appropriate or marketing teams efficiently utilizing trade spend for promotional activity?
LOSS – Is the organization losing high valued customers, possibly due to pricing.
When a publicly traded subscriber based B2C organization such as Netflix discloses their revenue for the quarter or provides guidance into future quarters, revenue growth can generally be broken down into four customer actions: new subscribers, customer “churn”, upgrades, and downgrades (switching pricing plans). These 4 actions should be easily identified in any revenue reporting system.
By recognizing the uniqueness of B2B organizations, the same customer actions can be accurately captured.