When did your company last update your prices – was it last week, last month, last quarter, or (gulp!) last year? Oh my – was it that long? I trust you had a chance to say goodbye to the missing profit margins that have disappeared in the meantime. Depending on the industry sector your organization is involved in, and the extent of raw materials, energy sources and other widgets used in your production process, at the very minimum annual price increases are essential while other businesses may even be looking at monthly, weekly, or even daily price list updates. Are you considering the impact of rising costs, inflation or competitiveness adjustments on your price lists? There are many reasons for you to review/increase your prices on a more regular basis but perhaps the most persuasive reason is that just a 1% increase can have a significant impact on your bottom line. This could, on average, increase your company’s net profits by 11%. You may also be surprised at how little it bothers most customers/clients, particularly if it is explained well and backed up by data analytics. Join us on a journey through how price list update horror stories can be avoided.
For more than 10 years, at Pricefx we have been working alongside hundreds of large-scale enterprise business organizations just like yours assisting them to deploy their pricing strategies at their unique commercial niches with the use of state-of-the-art cloud-native pricing software technology. With that significant level of pricing experience, Pricefx is perfectly placed to assess how up-to-date price list changes can also affect real-time profits.
So, let’s dive straight into an explanation of why swift price list updates are important, the horrors that can occur if they are not done on time and how pricing software can address in solving the price list update horror stories.
Why Updating Your Price Lists on Time is SO Important
Failing to regularly update your prices can be extremely costly. Marginal improvements in pricing will have a more significant impact on your business’ bottom line than a marginal improvement in sales. So instead of only asking yourself, “How can we increase sales?”—a question undoubtedly worth considering—your business also needs to be asking, “How can we create value through a more accurate pricing approach?”
Regardless of the industry your organization currently operates in, it is likely moving faster than ever before. Increased economic volatility, unstable global supply chains, increased global connectedness and rapid digitization have all caused markets to become more sensitive and dynamic. While the pricing ‘set-it-and-forget-it’ model has always been inefficient, this widely used and outdated strategy is proving to be even more consequential in the modern era.
Standard pricing processes and performance reviews of your products are often too slow to manage rapid change in a magnitude that has not been experienced for many years. Do you have 100 000 or millions of SKUs to update daily, each month or each quarter in Excel? Forget it – that is the start of the horror story right there.
The nightmare with manual price list updates is that your team cannot keep up with the current cost increases because they are changing so rapidly. Are your price list updates taking up to 2 or 3 months to complete, when to plug your margins, they really need to occur every 2 to 3 days?
Meanwhile, your profit margin is slipping out between the cracks as the prices of your raw materials and/or ingredients in production keep on rising without fail.
Has your organization updated price levels to keep you on track to achieve your targets? Your pricing team must be able to easily monitor your current profitability performance on a weekly or even daily basis, to focus on simulating business impacts of an intended price list update even at a customer-item level and to apply their pricing expertise; instead of juggling with non-automatic price list updates, manual profitability checks and even worse managing inefficient communication processes to your customers. Avoiding margin leakage means as well notifyingyour customers about price changes professionally and on time.
For closer examination as to why updating your price list is so important, look no further for an example than the stock market. Stock prices can change multiple times every second. If they didn’t, those stocks would be exposed to huge inefficiencies and as a result, would no longer indicate what things are genuinely worth.
Although your company might not necessarily need to change prices every second, the stock market example clearly shows that your organization should be updating its pricing as often as your business requires and allows.
Frequent updates of your price lists —whether your company is involved in manufacturing, service, distribution, retail, or any other sector — can help ensure you are reaching a wide audience, increasing margins, and maximizing your bottom line.
How Often Should My Company Be Updating Price Lists?
As all companies are different, there is no real ‘sweet spot’ or ‘one size fits all’ for how often your organization should be updating its price lists. Your company’s timeline for making price list changes depends on the growth stage of the organization and the nature of the business and your industry sector.
Larger company size and more experience does not necessarily mean less frequent price adjustments. As companies scale up and begin to sell to enterprise-level customers they need to continually adjust their price lists.
But the days of your pricing team sitting down in a meeting room once or twice a year, grinding your collective teeth for many hours, and agonizing over price increases and how and when to make them have long come and gone. Though some outward managerial planning to your pricing might be done in intervals, the internal work of price lists is daily and dynamic; it is not a ‘set-and-forget’.
And pricing software empowers it to happen.
The Steps to Avoiding Price List Update Horror Stories
Pricing your products or services correctly is at the heart of any successful business organization. If you are slacking with your price updates and your prices are too low, you will not be bringing in enough money to offset your expenses.
On the flip side, even if you’re pricing as often as you need to be, but you are still pricing too high, you could wind up excluding yourself from the marketplace (especially if your competitors have better deals).
It’s about hitting the sweet spot and using the power of your pricing software to unearth how much and how frequently your prices need to rise (or for that matter, alternatively decrease your prices if the circumstances call for it)
However, updating your price lists does not have to be difficult or a company-wide headache.
Here’s our step-by-step guide to understanding exactly how often and how much you need to alter your price lists so you can maximize your sales, revenues, and profits;
Rely on your data to get granular with your pricing decisions; You’ll make better, more accurate, more confident, and more informed price list update decisions if they are backed up by the data you are feeding into your pricing software. Understanding your customers through data to support your intuition instead of relying on second guessing yourself is critical. This means analyzing your own historical data on how your prices have changed, why they’ve changed, and how your customers have reacted.
Align Your Organization’s Departments; You need to align ideas, create transparency and compliance around your pricing strategy that will ultimately drive the price list updates you make across various departments so you’re all putting your efforts towards driving to the same organization-wide business goals. Discuss pricing early and often with team members in all departments—especially sales, marketing, customer success, and product development. Conversations across your business about pricing assists all team members understand their unique roles in pricing and get you all working in sync.
Have discussions with your customers about your products and prices: It’s vital to communicate with customers about your pricing because no one is going to want to pay more. However, that said, if your costs are rising, an early, clear, open, and honest conversation with your customers as to why your next price list update will see across the board increases will generally be well understood.
Plan Price Transitions for Your Existing Customers:Your relationships with your current customers are extremely valuable and you want to show them that you care. Therefore, it’s critical to plan and communicate how a price adjustment will affect your current customers.
If you only recently signed a big contract with a new client, for example, you should not switch up pricing a month after signing it when you have recently made it through a long negotiation process.
For example, you might decide on grandfathering existing customers into a new contract or customer-specific pricing plan, provide a grandfathered discount, agreement, or promotion, or on the other hand, simply implement a direct but otherwise justified price increase. Establishing that precedent of crystal-clear communication will help you easily and effectively explain any price increases while maintaining good quality customer relationships.
Keep Track of Relatively Minor Pricing Events: Don’t Wait for a Major Price Shift: Many business owners will wait until a big event occurs before they choose to change their prices or update their price lists. Sometimes, companies may wait for something like the cost of shipping to reach a certain optimal level, for the costs of raw materials to change, for inflation to drop or other dramatic changes.
Sure, those big events need to be tracked and of course, they can be critical triggers to your price list updates. However, don’t forget the minor everyday events too. Your business isn’t only affected by these big events, it can be affected by thousands, even millions, of smaller micro events occurring every day.
With a modern and robust pricing software platform, your organization will be able to visualize and react to the daily tiny micro events and establish a competitive edge through the data-informed insights of better pricing decisions.
Price List Updates Done Right……..And Fast!
Now you know how to get avoid price list update horrors and that by simply updating prices regularly and informed by data, businesses just like yours can potentially increase revenues and profits and avoid those gruesome margin leakages. The question that remains of course is; ‘how do I know which price is the right price?’ After all, updating your price lists just for the sake of change will not guarantee you can capture this value.
Luckily, in an increasingly data-driven world, there are many excellent resources available that can help your business find the optimized price. Pricefx, for example, is an innovative pricing software solution that makes it possible to continually monitor variables that might affect your pricing choices, including changes within your own business, changes among your competitor’s prices, changes within the broader industry and much more.
Using advanced data science, it is possible to automatically receive up-to-date pricing recommendations and adjust your pricing mode and strategies accordingly.
But if you’re not sure about implementing your pricing strategy, check out this handy article below for more advice on implementing your company’s pricing strategy:
However, if your company is a ‘pricing mature’ one, and you already have your pricing strategy in place, you’ll want to talk today to one of our pricing experts to get started with implementing Pricefx;
Isaias Jaramillo-Rojas is a Solution Strategist at Pricefx, where he provides guidance in the sales process by creating suitable and custom solutions for companies that are looking to boost their pricing performance through data supported decisions. Working in the past years as a Pricing Manager in the DACH Region, he focused on the development of omni-channel distribution strategies and automatization of end-to-end pricing business processes.