In the fast-paced world of B2B sales, closing deals is often seen as the ultimate victory. But what happens if those deals come at the cost of razor-thin profits? Striking the perfect balance between winning sales and maintaining healthy margins is a crucial skill for any salesperson, especially in complex industries like distribution, chemicals, and manufacturing. Traditionally, salespeople might rely on gut feeling or ballpark figures when negotiating prices. However, in today's competitive landscape, such an approach can leave money on the table and hinder long-term business success. A data-driven approach to margin pricing is developing into a necessity for businesses rather than a luxury.

At Pricefx, as the world’s leading provider of cloud-native enterprise pricing software, we have spent more than a decade answering all manner of pressure points from our customers including assisting them to effectively price for margins. By identifying the top transactions that require careful attention and leveraging the power of pricing software, we help businesses to effectively mitigate margin leakage and optimize their profitability.

This article dives into the concept of margin-focused pricing and explores how enterprise pricing software (EPS) empowers sales teams to become pricing champions. We will uncover the challenges of traditional pricing methods, highlight the benefits of EPS, and provide actionable tips for salespeople to confidently negotiate deals that are good for both the customer and the company.

Why Pricing for Margins is Important

Pricing for margins means setting prices that consider the cost of goods sold, as well as other expenses such as overhead, marketing, and sales costs. This ensures that your business can cover its costs and make a profit from each sale. Pricing for margins is particularly important in B2B industries, where competition can be fierce, and margins can be thin.

Pricing for margins also helps to ensure that your business can invest in growth and innovation. By pricing for margins, you can ensure that your business has the resources it needs to invest in new products, services, and technologies, and to stay competitive in the marketplace.

The Challenge: Beyond the Close – Why Traditional Pricing Methods Fall Short

Imagine a salesperson celebrating a major deal, only to discover later that the profit margin is minuscule. This scenario, unfortunately, plays out all too often when pricing decisions are based on:

• Gut Feeling: Relying on intuition or "what feels right" can lead to inconsistent pricing and missed opportunities to maximize profitability.
• Competitor Benchmarking: Matching competitor pricing might seem safe, but it neglects the unique value proposition of your own offerings and fails to capture the full potential profit margin.
• Discounting Frenzy: While discounts can be a strategic tool, resorting to them too readily erodes profits and sets a precedent for future negotiations.

One of the biggest challenges of getting your sales team to price for margins is overcoming the natural tendency to focus on revenue rather than profitability. Salespeople are often incentivized to close deals and generate revenue and may not always consider the impact of pricing on margins.

Another challenge is the lack of visibility into pricing data. Salespeople may not have access to the information they need to make informed pricing decisions, such as the cost of goods sold, competitor pricing, and market trends. This can make it difficult for them to price for margins, even if they want to.

The Solution: Gaining a Competitive Edge with Enterprise Pricing Software

Enterprise pricing software can help to overcome these challenges and get your sales team on board with pricing for margins. Pricing software provides salespeople with the tools and information they need to make informed pricing decisions. This includes access to real-time pricing data, competitor pricing, market trends, and tools for analyzing and optimizing pricing.

Pricing software can also help to align incentives and encourage salespeople to price for margins. By providing visibility into the impact of pricing on margins, pricing software can help salespeople to see the benefits and to understand how their pricing decisions affect the bottom line, and can also:

Guide Value-Based Selling

Value-based selling goes hand in hand with pricing for margins, as it focuses on highlighting the value proposition of your products or services to customers. By understanding the unique needs and pain points of customers, sales teams can articulate the value they offer and justify premium pricing.

Enterprise pricing software provides valuable insights into customer preferences, buying behavior, and willingness to pay, enabling sales teams to tailor their value propositions and pricing strategies accordingly. Incorporating value-based selling techniques into sales training and coaching sessions empowers sales reps to effectively communicate value and command higher prices.

Encourage Collaboration with Pricing Experts

Incorporating pricing experts into your sales team can provide invaluable guidance and expertise in pricing optimization. These professionals specialize in understanding market dynamics, pricing strategies, and industry trends. By collaborating with pricing experts, sales teams can gain insights into pricing best practices, identify opportunities for margin improvement, and fine-tune pricing strategies based on market feedback. Whether through training sessions, workshops, or one-on-one consultations, leveraging the expertise of pricing professionals can significantly enhance your sales team's pricing capabilities.

Automate Complex Calculations & Simulate Price List Impact Changes Before They

An automated pricing software solution can automate intricate pricing calculations, emliminating time-consuming manual work and ensuring pricing consistency across all deals. However, the final decision still is a human one for salespeople to determine their own pricing decision making based on the automated price proposal.

What's more, Price List Impact Simulation features provide pricing teams a robust tool to assess the potential effects of price list updates before implementation and proactively price to protect margins. This feature provides a comprehensive simulation, considering all elements of the price waterfall, including special price agreements, and offers a visual comparison between the current status quo and the simulated scenario, along with relevant calculation outputs for effective evaluation. What’s more, it gives the pricing team the opportunity to empower their salespeople by providing them with "better" or more targeted prices.

For instance, suppose there is an existing price list that needs updating, whether by adjusting prices for specific products or implementing more complex changes like modifying price strategies. With a Price List Impact Simulation feature, users can simulate the impact of these updates, applying filters such as historical transaction data or specific sales territories to refine the results. After completion, users receive an executive summary of the business impact, accompanied by visual comparisons and detailed calculation outputs, enabling informed decisions on price changes before implementation thereby protecting margins.

Set Clear Pricing Guidelines

To ensure consistency and alignment across the sales team, it is essential to establish clear pricing guidelines and policies. This includes defining pricing objectives, target margins, and pricing strategies tailored to specific product lines or customer segments.

When you give sales reps clear rules and boundaries, you help them to make smart pricing choices while keeping profitability. Clear pricing builds trust when discussing prices with customers if your salespeople know the reasoning behind the pricing decisions. This is a great benefit for most of the sales teams who suddenly gain a lot of clarity and insight into pricing. Moreover, frequent evaluations and revisions of pricing rules based on market shifts and business goals help sales to adjust to changing market conditions.

Measure and Monitor Performance

Effective pricing optimization requires continuous measurement and monitoring of key performance indicators (KPIs). These metrics provide valuable insights into the effectiveness of pricing strategies and help identify areas for improvement. KPIs such as gross margin, average deal size, win rate, and price variance can shed light on the success of pricing initiatives and the overall health of the sales pipeline. Enterprise pricing software offers robust reporting and analytics capabilities, allowing sales teams to track KPIs in real-time and make data-driven adjustments to pricing as needed.

Provide Negotiation Support

Pricing software equips salespeople with "what-if" scenario modeling tools that allow them to explore different pricing options and predict their impact on profitability. This strengthens their negotiation skills and allows them to confidently hold their ground when it comes to pricing discussions.

Contracts that are negotiated often cause margin leakage, as the terms and conditions are usually subject to intense negotiations. Pricing software is crucial in this area by providing insights and analytics based on data to help with contract pricing decisions.

By looking at historical data, market conditions, and customer preferences, pricing software helps businesses to set pricing levels that are competitive and profitable.

All discounts should depend on something, (for example orders that are above a certain size get a discount or period or a customer discount for having annual revenue above a certain limit which is checked quarterly or annually).

Promotional or discount programs that do not require anything from the customer are often likely to result in a margin loss and reduced profit.Whether it is giving discounts for a limited time, bundle offers, or personalized promotions, pricing software helps you improve your pricing strategies and save money by increasing the effect of your promotional activities.

Strategies for Getting Your Sales Team on Board with Margin Pricing

Here are some strategies for getting your sales team on board with pricing for margins:

• Provide training and education: Provide your sales team with training and education on the importance of pricing for margins, and how to use pricing software to make informed pricing decisions. This can help build their confidence and skills and ensure they can price for margins effectively.
• Align incentives: Align incentives to encourage salespeople to price for margins. This could include bonuses or commissions based on profitability rather than revenue, or other incentives that reward salespeople for pricing for margins.
• Provide visibility into pricing data: Provide your sales team with visibility into pricing data, generating more relevant insights (especially regarding their customers), and giving a better level of transparency and understanding of their prices.
• Encourage collaboration: Encourage collaboration between your sales team and other departments, such as pricing, finance, and marketing. This can help to ensure that everyone is working together to price for margins, and that salespeople have the support they need to make informed pricing decisions.

How Pricing Software & Good Strategy Work Hand-in-Hand to Best Manage Margin Pricing

Pricing software is awesome, but it cannot handle margin pricing, stop margin leakage, and mitigate wild price changes all on its own without strategic intervention. You will also need a great sales team and a smart pricing strategy that fits your company's specific business goals, along with the pricing software that can help you put it into action.

Pricing software cannot decide your company's business strategy for you, whether it is a competitive pricing strategy, value-based, dynamic pricing strategy or cost plus. But a good pricing software solution will help you make it happen and mage your chosen strategy efficiently. As your business grows, your pricing software will then help you keep track of, set, and change all those thousands of prices that are moving, and in the process, protect your profit margins.

The most important thing to remember is that pricing is not a 'one and done.' If you snooze at the 'pricing wheel' that could be the biggest risk of all to your margin pricing initiative.

It pays to be proactive, so you do not end up reporting losses because you were not ready to act. Many companies settle for standard or default analysis because of the number of data sources they need to use and the frequency of changes. Pricing software can help simplify pricing by helping organizations plan at the strategic level and execute at the tactical transaction level even in highly dynamic environments where the data needed to understand margin can change daily.

If you want to learn more about pricing software, check out the article on the link below to help you choose the best and most comprehensive pricing strategy for your business:

Alternatively, if you have a clear and effective pricing strategy, schedule a consultation with one of our experts today to begin your margin pricing journey by exploring pricing software and unleashing its power.

Meanwhile, Happy Pricing!