Ask an owner how they could grow profit, and most will talk about winning new customers, launching products or reducing costs. Few mention pricing first. Yet in many established companies, pricing is the lever with the most direct effect on profit and the least management attention.
Prices are often set years ago, adjusted irregularly, and eroded by discounts given case by case. The result is a pricing structure that reflects history rather than value. Reviewing it carefully can strengthen margins without a single new customer.
Why pricing gets neglected
- Fear of losing customers. Owners worry that any increase will drive customers away.
- Habit. Prices are adjusted only when costs force it.
- Decentralised discounting. Salespeople negotiate individually, with little oversight.
- Lack of data. Many companies do not know their real margin by customer or product.
- Founder modesty. Owners sometimes under-price their own expertise.
Step 1: Understand your current reality
Start with data. For the past two or three years, analyse:
- Price and margin by product or service
- Price and margin by customer and segment
- Discounts given, by whom and why
- Payment terms and their effect on cash
- Price changes and how customers reacted
The result often surprises owners. Similar customers may pay quite different prices for the same service. Some customers are barely profitable once discounts, special terms and service costs are included.
Step 2: Understand the value you deliver
Price should reflect the value customers receive, not only your costs. Ask:
- What problem do we solve, and what would it cost the customer to solve it another way?
- Which elements of our offer matter most to customers?
- Where do we have few alternatives in the customer's eyes?
- Which services do we provide for free that customers would pay for?
Customer interviews are invaluable here. They often reveal that customers value reliability, speed, expertise or service far more than the owner assumed.
Step 3: Segment your pricing
Not all customers value the same things. Consider differentiating prices or packages by segment, volume, service level or contract length. Common approaches include:
- Tiered service levels
- Separate pricing for additional services previously given away
- Volume-based pricing with clear rules
- Contract incentives for longer commitments
Step 4: Bring discipline to discounts
Discounts are where much value leaks. Introduce:
- Clear discount guidelines and authority levels
- A requirement to document the reason for each discount
- Regular review of discounts by customer and salesperson
- Something in return for every discount, such as volume, commitment or faster payment
Step 5: Plan price changes carefully
When increasing prices:
- Prioritise customers or products where prices are clearly below value
- Communicate early, with clear reasons
- Equip the sales team to explain the change confidently
- Consider phasing for important customers
- Monitor reactions and adjust where needed
Most customers accept well-explained, fair adjustments, especially from a supplier they value. Some may leave; often they are among the least profitable.
Step 6: Make pricing a routine
Pricing should be reviewed regularly, not only when costs rise. Appoint someone responsible for pricing, establish an annual review and track realised prices and margins monthly.
Common pricing mistakes
- Cost-plus by default. Ignores what customers would pay.
- Across-the-board increases. Fail to reflect differences in value and customer relationships.
- No follow-up. Price lists change but realised prices do not.
- Over-reaction to a lost deal. One lost customer leads to discounts for all.
- Leaving pricing to sales alone. Sales incentives often favour volume over margin.
Why it matters for value
Buyers and investors look closely at margin quality and pricing power. A company that can show disciplined pricing, stable or improving margins and an understanding of customer profitability presents a stronger case than one where margins depend on circumstance.
A word of caution
Pricing decisions in some markets are subject to competition law, particularly regarding discussions with competitors or certain contract terms. Where relevant, seek legal advice.
Measuring pricing performance
What gets measured gets managed. A few indicators help keep pricing on track:
- Realised price compared with list price, by product and segment
- Average discount by salesperson and customer group
- Gross margin trend by product line
- Win rate before and after price changes
- Customer profitability, including service costs
Reviewing these monthly makes leakage visible and gives the commercial team clear feedback. Over time, pricing moves from an occasional, uncomfortable exercise to a normal part of how the company is managed.
How LXN works with owners
Pricing is one of the first areas we review when working hands-on in a business. We analyse margins by customer and product, help define a clearer pricing structure and support the commercial team in implementing changes with confidence and care.
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