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One Trillion Urgent Reasons for Price Optimisation

Robert Irwin< Robert Irwin May 27, 2021

“Having a sense of urgency drives growth.”  Right now, as we emerge from disruption, this applies to price optimisation more than ever.

I spend a lot of time talking to prospects about ‘why now?’ Why a sense of urgency is more than appropriate when considering whether to embark on price optimisation programs. If it were easy, then everyone would have already done it. “It ain’t easy,” as David Bowie rightly noted, but it is hugely worthwhile if you get it right. 

Did you know that according to Gartner, only 14% of organizations who could benefit have embarked on a significant effort to improve their price optimisation and management?   Congratulations to you if you are one of the 14%.  Welcome to what is currently an elite club. That is a great achievement. 

I hope you have also set yourself up for success, both in terms of being able to measure your successful outcomes and having also carefully thought through the adoption and change aspects of the project. Remember: it is not a tool, it is a transformation

What About Those Not Using Price Optimisation?

What about the rest: the remaining 86% who are not leveraging price optimisation? Just consider this. How much profit opportunity do you think will fall by the wayside if you, as part of that 86%, do not take up the challenge to improve your price optimisation and margin management. 

I ran some back-of-the-napkin (but supported by hard evidence) calculations: 

  • In 2020, the Global Fortune 500 earned revenues totaling $33T
  • Conservative estimates for the B2B portion of that revenue total range from 50% to 67%; for the sake of this napkin, let us assume 50%.
  • Companies using price optimization and management (PO&M) practices and solutions typically realize bottom-line benefits in the range of 1% to 3% of top-line revenue (and based on my experience often much more). Let us take a conservative estimate of 1.5% return on sales. 
  • Gartner, as I already pointed out, stated that 86% of companies have not yet taken steps on the PO&M journey. 

This means that over the span of just five years, that lack of PO&M across Global Fortune 500 B2B firms adds up to a staggering one trillion dollars in profits left on the table.  Again, note that this is based on conservative calculations. 

Are You Properly Poised to Exploit the Rebound?

The impact of 2020 was felt broadly and deeply in both the market and the home.  Compared to 2019 levels, revenue for the Fortune 500 dropped by 34%.  There was significant demand destruction: consumers significantly cut spending, and sectors like travel and entertainment saw their business grind to a complete halt.  

It is, however, inevitable that every slowdown sets up the next period of growth.  Pent-up demand is already appearing, priming the economy for a burst of growth in 2021. Oxford Economics has predicted England’s output growth at 7.2%, the strongest growth in decades. In a Wall Street Journal poll earlier this year, economists on average expected US gross domestic product to expand by 6.4%.

This presents a huge opportunity if you are willing to seize the day and embark on the continuous pursuit of value through price optimisation and management.  Adopt a sense of urgency and look to grab your fair share of the one trillion dollars that will otherwise be simply left on the table.