Do you understand what’s impacting your margins, sales, and revenue? Implementing analytics for your pricing strategy is key to understanding your business, improving agility, driving profitability, and leveling-up your commercial excellence maturity.
Services organizations face unique challenges and complexities when it comes to pricing. Costs, overhead, contingencies, and margins are just a few factors affecting service price.
It’s common for people to view services as harder to price than products or widgets. But what if you view your service offerings more like SKUs? When it comes to putting pricing to practice, strategies that you use to price products aren’t all that different from strategies you can use to price services. The same advanced capabilities that product pricers use – segmentation, willingness to pay, price volume mix, analytics, etc.– can be brought to bear for your services offerings.
Pricing is hard. Compounding the inherent difficulty in the role of pricing, we’re facing changing market conditions, increasing business complexities, inflation, geopolitics, supply chain issues, and other economic factors. For services organizations, where your business is your people, pricing has never been more important to get right. The good news is that you don’t have to do it alone.
Pricing strategies for services have traditionally focused on covering costs and achieving pre-determined margin expectations, with far too much emphasis on the prices of the competition. It’s time to move beyond these archaic strategies and build transformational business value for your organization. Key to continuous pricing improvement is deep and robust analytics.
Before we unpack pricing analytics, let’s pause to reflect on what continuous pricing improvement really means. Pricing your services is not a one-off project, it’s an ongoing business practice area. Transforming your pricing means analyzing your people, processes, and technologies. True pricing transformation relies on fundamentally changing your pricing and sales culture. As someone responsible for pricing, part of your job is to help the rest of the organization understand the value of pricing as an ongoing commercial excellence program.
When you’ve fostered the right culture and aligned your people, processes, and technologies accordingly, you can start implementing best practices to improve your services pricing. But that’s only the beginning. Beyond initial pricing improvement, you must consistently iterate and optimize by monitoring and managing pricing analytics.
Move from Custom Built Analytics to Commercial and Price, Volume, Mix Analysis
Services companies often have a DIY mentality when approaching commercial self-improvement. Rather than building your own commercial analytics, consider implementing more structured analytics that were built for commercial leaders by commercial data experts.
Analytics that visualize pocket margin and cost-to-serve are neither intuitive to build nor are they easy to scale or replicate on a scheduled basis and this is doubly true for analysts buried within commercially immature companies. Large, complex organizations need enterprise-level capabilities to construct and support agile price setting, deal setting, and margin management waterfall constructs. The waterfall elements need standardization, or at least alignment, across the appropriate classification of data, and ultimately, the business function that controls the components in the waterfall element. You can’t control what you can’t measure, and the function that controls needs to be held accountable for their decisions.
To compare performance of one period to another, use price-volume-mix (PVM) analysis to help answer questions around how changes to price or volume are impacting margin and revenue:
- Does lowering our service rates to win more hours improve our top and bottom lines?
- Does bundling one service with another service have the same impacts on profit as it does on revenue?
- How do we measure the impact of subcontractors on the overall margin?
- How helpful are alternative contracting vehicles, such as long-term service agreements?
High level business-wide price-volume-mix analysis has long been used to communicate results to executives. Vendavo’s Margin Bridge Analyzer, for example, has consistent drill-down capabilities and empower BU leaders and functional heads – especially the selling and pricing teams – to uncover why something happened or continues to happen. Constant monitoring of win-loss metrics will help you tune messaging and understand which concessions (temporary rate cuts, changed volume commitments, different contractual models) resonate with clients.
Building a margin and revenue bridge enables your organization to measure and monitor the business impacts of complex variances in prices, hourly volumes, work performance, subcontractor costs and interchangeability, and the packaging or bundling of various service-lines.
Maximize Margins with Dynamic Price Guidance
Earlier I mentioned that you don’t have to do this alone. Vendavo offers intelligent pricing solutions that can assist you in unlocking new profit areas and accelerating revenue. Our capabilities like segmentation, price optimization, profit analytics, and price administration provide dynamic price guidance to help you maximize margins with each transaction.
Deal Price Optimizer, for example, shifts pricing work from spreadsheets to AI-driven CRM intelligence. It combines a blend of advanced AI with expert human intelligence that delivers optimal pricing intelligence, empowering you to run impact analysis on guidance levels, quickly generate as many price scenarios and models as you need, and automate the price-setting process to your quoting tool.
Put simply, price guidance gives you the opportunity to raise your prices, limit options, offer tiered pricing, move away from transactional pricing, and stay ahead of the competition with intelligent pricing models.
Building an effective pricing strategy for your services is essential to boosting sales and profitability. But having a pricing is one thing – deploying it successfully and backing it with intelligence and analytics is another. One more time for good measure: you don’t have to do it alone.
If you’re ready to align your services pricing to your overall business strategy, give Vendavo a call. We’re happy to be your partner every step of the way.