3 pricing strategies that can help you improve your top and bottom lines
Anthony Bergs, project manager at Writers Per Hour, poses a question: How should B2B marketers price their services for more sales and profit?
Many B2B business leaders underestimate the potential to alter their pricing of their products or services. They firmly believe that prices are determined by market conditions such as competitor pricing structures, commoditization of goods or services and disrupting business models deployed by new digital age companies, for example. They are apprehensive that they may lose customers if they introduce a different pricing structure.
B2B companies hardly have a standard menu of prices. The price is negotiated with each client, and the salesforce tends to give discounts that are less profitable for the company just to close the deal and earn commissions. Organizations lose significant revenue in the long run due to a lack of a good pricing strategy.
Contrary to popular perceptions, B2B companies can optimize pricing strategy to increase sales and profitability. According to an analysis by Bain & Co., every 1% improvement in realized price can lead to an increase of 8% operating profit for B2B companies across various sectors.
Here are three strategies that will help business improve both top and also bottom lines.
1. New opportunities in the value chain
Many B2B products and services are highly commoditized. However, some suppliers are preferred by many customers because of timely and quality of delivery, advice and consulting or customer guidance in the product selection process. Many pieces of research suggest that in any B2B industry; some suppliers charge a 4% to 5% premium over other providers.
To charge a premium price, you need to find out the new opportunities in the value chain. The new opportunities could be instant delivery, priority servicing, site inspection, post-sales support, help in the end-use of the products or services, installation or research and insights, for example.
After developing a deep understanding of customer requirements, introduce a new pricing structure for value-added services. Not all clients will need the value-added services. However, some will pay a premium for their niche requirements. To implement such pricing structure efficiently, you need to develop compelling case studies that reveal the benefits of value-added services to customers.
2. Salesforce commission structure
Salespeople provide substantial discounts to win clients. This practice may generate some volume in the short term. However, in the long run, the company loses a significant chunk of revenue and profitability.
To overcome this, explain the impact of pricing and discounts to salespeople. Share pricing tiers and structure with the reps and encourage them to provide discounts that help the company in the long term. To make this effective, you need to develop a commission structure for sales staff that encourages long-term benefits for them as well as the company.
3. Channel partner pricing
Channel partners play a significant role in driving sales. In many cases, businesses are heavily dependent on channel partners to sell product or services. If you are selling through channel partners, you need to optimize their commission structure. Remove all old and repetitive discounts and develop a performance-based incentive program. Invest in capability building of your resellers. The channel partner program should be conceptualized to maximize ROI for the organization in the long run, while improving the earnings of partners as a result of increased sales and more efficient processes.
Pricing strategy must be reviewed and optimized consistently to maximize profitability, as well as to deliver more value to customers. Developing the price strategy should be the responsibility of a cross-functional team that includes representatives from all departments.
Revenue leakages as a result of accounting omissions should also be fixed. Not all customers honor the contract. Organizations should have a provision to review contracts periodically and fix responsibilities on customers for their omissions and commission in not honoring the contract.
Don’t leave money on the table by just charging for your products. Improve sales efficiency and pricing structure to realize more value for the excellent work that you do for your customers.