PriceCraft Pricing health check Pricing Health Check · USD 69
Your list price is USD 148. Your average realized price is USD 103.
Eighteen months of transactions, and where 30 percent of list disappears before it reaches an invoice.
You have a price list and almost nobody pays it. That is normal in trade distribution. What is not normal is that the discount a customer receives has almost no relationship to their volume, and eleven accounts are getting better terms than your three largest customers.
Average realized price is 69 percent of list. The correlation between account size and discount depth is 0.11, which is close to none. Discounts are being set by who asked and when, not by what the account is worth.
Realization
Where list price goes
The bands overlap almost completely. An account in the 11 to 50 band can be paying USD 79 while one of your top ten pays USD 118. If pricing were volume based these bars would step downward and barely overlap.
Leakage
The eleven accounts
| Account | Annual volume | Realized price | Rank by volume | Rank by price |
|---|---|---|---|---|
| Account A | USD 18,400 | USD 79 | 94th | 1st best |
| Account B | USD 22,100 | USD 81 | 81st | 2nd |
| Account C | USD 31,600 | USD 82 | 62nd | 3rd |
| Largest customer | USD 412,000 | USD 88 | 1st | 9th |
| Second largest | USD 358,000 | USD 91 | 2nd | 14th |
| Third largest | USD 291,000 | USD 96 | 3rd | 31st |
Your third largest customer, at USD 291,000 a year, pays 22 percent more per unit than an account doing USD 18,400. All three of the top rows were negotiated by the same salesperson in 2023 and none has been reviewed since.
Mix
What customers actually buy
| Standard | Mid | Premium | Specials | ||
|---|---|---|---|---|---|
| Top 10 | 31% | 38% | 29% | 21% | 12% |
| 11 to 50 | 27% | 44% | 31% | 18% | 7% |
| 51 to 150 | 26% | 56% | 27% | 13% | 4% |
| 151 to 340 | 16% | 71% | 19% | 8% | 2% |
Larger accounts buy proportionally more premium and specials. That is the argument for volume-based pricing being roughly right in principle: the accounts that buy more also buy better mix. It is being undermined entirely by how the discounts were actually set.
Next
What to do, and in what order
- First
Produce the realized price number monthly
One figure, all five deductions included. Nobody in the business currently sees it and every decision below depends on it existing.
- First
Build the volume to discount band table
Four or five bands with a defined discount each. You do not have one. Every negotiation currently starts from nothing, which is how the correlation got to 0.11.
- Then
Do not reprice the eleven at once
Three of them are on multi-year terms and one is a relationship that predates the current owner. Take them at renewal, one at a time, with the band table as the reason.
- Then
Fix the top three first, in the other direction
Your three largest accounts are underdiscounted relative to the band table. Giving them the terms they should already have is a cheap retention action and it makes the band table credible internally.
- Watch
Settlement discount at 2 percent
Taken by 84 percent of accounts, most of whom pay at the same time they always did. That is USD 31,000 a year for almost no change in payment behaviour and it is worth a separate look.