Why is Pricing diagnostic so important?
Many CEOs have a clear idea of what goal and improvements they want their pricing plan to achieve. Where they encounter challenges is how to design an effective roadmap to bring such goals to reality.
Ineffective pricing practice is not the only factor hindering companies from getting their prices right. There is also the problem of internal conflict. When key figures within an organization don’t agree on how they should set and manage pricing, the lack of unified strategy will usually result in inconsistent prices and consequently margin erosion.
In cases where the main goal is to improve existing ineffectual pricing practices, bad planning and execution will ensure that the business records no tangible progress. For this reason, it is best that early on and throughout the whole pricing process of your business, it’s critical you include Pricing diagnostic for a better end result.
What it does
Pricing diagnostic assesses all significant aspects of your current pricing strategy. In addition, it helps in establishing a vision as well as a comprehensive step-by-step plan of how you can achieve that vision of the best-in-class pricing strategy.
What essential questions do you get to answer during Pricing diagnostic? Below are the 13 must-answer ones.
Important Pricing diagnostic questions you need to answer
- What do you want Pricing diagnostic to do for you?
Like with any other project, before carrying out a diagnostic of your pricing process, you need to determine precisely what it is you want to fix. Do you want to use Pricing diagnostic to quantify your financial opportunities? That is, separate the easiest opportunities to capture from the more difficult ones.
- How well are you pricing?
Pricing more than any other factor in your business determines how robust your bottom line will be at the end of the day. If you’re underpricing or overpricing, it’s just a matter of time before your sales, profit, and revenue start feeling the pain of your decision.
- How efficient is your pricing process or pricing model?
Every pricing process or model is developed to achieve a specific goal. At certain periods, the goal could be to maximize profit. While for some other time, you may want to maximize your market share or want your product or service to be known for its high quality. Whatever your goal might be, you can tell how efficient your pricing model is by the result you’re getting.
- Have you done a quantitative and qualitative assessment of your pricing maturity?
Is your company best-in-class in the industry in the area of value capturing pricing? Your pricing maturity shows how much value your business can capture. Furthermore, you get to see how prepared you are in facing the competition and areas where your pricing model needs to be strengthened.
- How much EBITDA can you generate this year with pricing optimization?
EBITDA, which stands for earnings before interest, taxes, depreciation, and amortization, measures the ability of a business to earn a profit. By showing a business earnings before tax and interest are deducted, it is a reliable indicator of how well a company is performing compared to industry averages. So, say your EBITDA is lower than industry standards, that tells you some aspects of operations probably need to be replaced or improved.
Eight other questions (which are no less important) you need to answer when performing pricing diagnostic include:
- Have your team followed a training dedicated to pricing?
- Which pricing tool is right for you?
- How can you implement value-based pricing?
- How much money do you leave on the table?
- Which share of the market can you go after or keep?
- What are the real best alternatives to your services & products?
- By how much can you increase your prices this year without losing volume or revenue?
- Does your 5-year business plan take into account possible price increases?