Research Shows Price Strategy and Price Optimization Boost Revenue and Profit

Highlights

  • Research shows that only about one-quarter of companies have a formal price strategy and active price optimization program. However, those companies with both are 40 percent more likely to achieve year over year revenue growth.
  • B2B companies with active pricing strategy and optimization attribute 3 to 8 percent annual revenue growth to the programs. They also cited accelerated sales cycles and reduced discounting.
  • B2C companies with active pricing strategy and optimization attribute 2 to 4 percent annual revenue growth to the programs. They also cited greater pricing agility, more value from their goods and services, and higher customer affinity for the most competitive goods.
Johnny Grow Revenue Growth Consulting

Optimize Prices to Grow Revenues and Profits

Research published in the Sales Excellence Report surfaced three key findings regarding the price of a company's goods and services.

First, the combination of a formal pricing strategy and active pricing optimization program directly contributed to 2 to 8 percent annual revenue growth.

The revenue uplift varied for different types of companies. For example, B2B companies that implemented price strategy and optimization increased annual top line revenue by 3 to 8 percent. About 80 percent of that revenue growth was sourced from optimized sale amounts. The other 20 percent was gained by reducing revenue leakage from activities such as discounting, deal incentives, payment terms and off-invoice charges.

Active pricing and optimization programs at B2C companies directly contributed 2 to 4 percent annual revenue growth. Interestingly, while B2C companies earned a lesser revenue increase than B2B, they were 22 percent more likely to operate these programs.

Second, while a minority of companies implement formal price strategies and optimization, those who do are 40 percent more likely to achieve year over year revenue growth.

Price Strategy Adoption

And third, companies that calculated price elasticity highly correlated with Best-in-Class sales performance. While only 14 percent of participants routinely calculated price elasticity for a majority of their products or services, 85 percent of that group achieved Best-in-Class sales performance results (i.e., ranked in the top 15 percent.)

Price Elasticity Adoption

Price elasticity shows how changes to the selling amount of goods or services impact the quantity sold. It's nearly impossible to calculate optimal product and service prices without measuring item elasticity.

Other survey findings for B2B companies are shown below.

Price Strategy Survey Findings

Research published in the Sales Excellence Report found that the combination of a formal price strategy and active price optimization directly contributed to 2 to 8 percent annual revenue growth.

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Company Pricing Insights

The data infer several insights.

  • As shown in the above graph, 64 percent of participants do not have a dedicated  team that optimizes selling prices. It's nearly impossible to systemically improve sales pricing performance when the process is fragmented or treated as a non-strategic or non-core responsibility.
  • 59 percent of participants update most product or service amounts 1 or 2 times annually. Stagnate prices result in lost sale opportunities as well as leaving money on the table by under-selling. The problem is exacerbated as companies don't track and therefore don't know the financial loss they are incurring.
  • 58 percent of participants do no have a formal and active price strategy. However, this figure falls to 8 percent of the Best-in-Class leaders. Their overwhelming adoption demonstrates an area where they clearly outperform their peers and achieve competitive advantage.
  • Only 19 percent of participants track price realization, that is the actual sale amount received compared to the list price. This process takes into account discounts, incentives, rebates, and payment terms.
  • Only 19 percent of participants use pricing intelligence software. Trying to manage complex pricing data in spreadsheets is laborious, inefficient and unlikely to surface the optimal product or service sale figures that maximize market share, revenue or profit. The number of pricing permutations and combinations make manual price setting impractical.