Pricing Case Study
When was the last time you reviewed your pricing?
Many companies are reluctant to increase the price of their products and services because they feel the market won’t bear the increase. Currently, companies are experiencing supply chain issues, increased costs of materials, labor, employee benefits, and a shortage of employees. Smith Schafer experts have assisted clients in various industries in examining their specific situations and have guided them in making decisions regarding the pricing of their products and various services. Here is a general approach we utilize and examples of specific situations that have been successful.
Smith Schafer Approach
We begin by gathering and analyzing data such as:
- Margin by product
- Margin by key customer
- Add-on services we may be giving away for free without realizing it
- Classify customers into A, B, C, others
- Pricing history of the company
- How each of these items compares to the industry as a whole
This may be an important time for the management team to examine the overall pricing strategy. We have resources that assist in making informed decisions.
Case Study #1
A business in the printing industry had experienced a decline in gross margin, and our analysis identified that lower valuable customers were creating scheduling inefficiencies by disrupting the production schedule with rush projects. We tested a pricing model on some of these customers and determined the rush surcharge needed to be paid by the customer or move the project to the regular schedule. The company decided to implement this policy across the board and not only received increased revenue in the form of rush surcharges, but it also was able to schedule more effectively and discontinued their third skeleton shift.
Case Study #2
A firearms accessory company was experiencing overall profitability struggles. Our analysis determined the true cost of production for their products was significantly higher than initially thought because of production-related inefficiencies of short production runs. Over time, their customers had shortened the production runs and also requested quick lead-time orders. The customers were vital to the company, so a general price increase was not the best option.
Company management and Smith Schafer experts determined various price points based on the quantity ordered. The company discussed the situation with their customers, and together they were able to agree upon prices and quantities acceptable to both parties.