Pricing is important. It affects whether you win the sale and the profit you make. The right process can cut staff costs, raise selling prices and help win more business. Read on to find out how.
No avoiding the human touch
There are many theories about how to price. Market comparison, the value created, demand, capacity, cost or history offer a base. All start with a calculation, and then a person sets that final price.
The corrugated industry often uses a cost-based method. Significant factors are raw materials, production and freight. Every sale of custom products will need calculations. These use costs and production methods to work things out. Whether manual or using a system, a person is always involved. Who should do it?
A dedicated resource can do time-consuming or complex calculations. Division of duties offers extra control. You could choose Estimating or the Commercial Department. Even have a dedicated Pricing team. But this is far from optimal. Let me explain.
A recipe for inefficiency
Every sale needs the seller and buyer to agree on a price. But, there is no single optimal time to discuss it. Sales situations and approaches differ. Buyers often request prices early with standard products. Solution-oriented engagements cover more ground before getting to the price. With such variability, successful salespeople prepare so they are ready. Often before they have a clear idea of the requirements. Or even whether a sale is likely.
A process separating selling and pricing encourages early requests. Selling is a numbers game and can be a busy role. Being prepared means getting things ready. Asking another department for pricing is quick and easy to do. Plus, there is a sense of progress and reward. Requests will come early and whenever there is a chance of success.
The result is many requests made and estimates prepared that are never used. Lots of chasing emails and calls. The worst salespeople are responsible for the most wasted time. A festival of unproductive activity and inefficient work – sometimes on a colossal scale.
You may be leaving money on the table.
The bad news doesn’t stop there. On the face of it, having a team to do pricing could be a good thing. It enables specialist skills to grow and offers extra control. Our research suggests the opposite. It hinders business more than it helps. Salespeople lack understanding when they don’t prepare prices. It’s harder to relate what costs what. This causes pricing requests for many variants – quantity, materials and options. All this work leads to delays, frustration and lost business.
Then there is finding the optimal match between need and solution. This includes assessing the value derived and the price that may be acceptable. Hard to do in a distributed process. Easy to leave money on the table.
How to do it better
We want to find the best solution and charge the best price while saving time. The approach is to find a way for sales staff to self-serve to calculate costs. We have a five-step process.
Step 1: Adopt the right mindset. Trust the sales team to use tools that can estimate and price. Set boundaries, but focus on enablement, not control.
Step 2: Keep things simple. Make it easy and fast. Forget using the MRP system – it’s not designed for selling and is far too complex. Focus on the main elements first to secure agreement. Refinements to designs and prices can come later.
Step 3: Structure inputs to mirror the sales activity. Expect requests for like-for-like pricing where certain parts must match. Use ‘any’ for unimportant parts, particularly when specifying a new product. Choose customer language to avoid technical translation.
Step 4: Make the system do the hard stuff. Find the best options for material, manufacturing route, or supplier. Check quantity and styles for alternatives. Select a margin based on product, business, history and market. These are tasks for a computer, not a person.
Step 5: Make results clear and understandable. Summarise only the necessary details. Show the design and proportions to check it all makes sense.
Pulling it together
Keep Estimators focussed on production. They set the budget for production. This helps measure and control things. Estimated and actual costs provide a valuable refinement to pricing algorithms.
Enabling sellers with the correct pricing system reduces work and cuts costs. It improves the performance of sellers by making responses timelier. It grows their knowledge and helps them find the best options. This raises customer satisfaction and, in turn, sales.
We are here to help
Our solution calculates costs for integrated plants and board converters. It eliminates human error. It establishes more profitable routes than industry MRP systems. It is consistent, removes judgemental assumptions and provides understandable calculations. It goes beyond board price breaks to the full production path for the best quantities. It is easy to use by manufacturers and merchants.
We work with sales teams from the most prominent players to owner-managed operations. We provide real costs in real-time. Get in touch to share our experience and see how we can help you.
