Are You Leaving Money on the Table?
When it comes to pricing your products, be sure to factor in the quality, service and dependability you provide rather than caving too quickly to requests for discounts.
Casey Brown speaks with an audience member after her presentation “Driving Profitability through Strategic Pricing.”
Bidding a job can be nerve wracking. You don’t want to underprice and lose potential revenue, but at the same time you fear you’ll risk losing the job if you overprice. Plus, the purchasing agents you’re dealing with are generally seasoned professionals who are well-versed in getting the lowest prices for their company. But just as it’s their job to do so, it’s yours to strengthen your company’s bottom line by getting a fair price for the work you do.
I recently attended the Precision Machined Products Association’s (PMPA) Annual Meeting, where the final presentation was “Driving Profitability through Strategic Pricing” by Casey Brown, president of Precision Pricing LLC. Her basic premise was that if you’re simply calculating your costs and adding a standard profit margin on top of that, you’re making a mistake. Beyond materials and machining, it’s important to factor in other deliverables such as customer service, quality, on-time delivery, problem-solving and investments you’ve made to stay competitive in terms of your technological capabilities. While I would encourage you to visit her website for additional information, let me share one exercise demonstrating how Casey was able to change the audience’s perspective on pricing over the course of the three-hour session.
At the beginning of the session, she posed a question to the audience members who were handed small digital devices as they entered the hall that allowed them to answer questions wirelessly. The question she asked was “How much pricing power do you have in the market?” At that point, early in the presentation, the answers were:
- A lot of power 13%
- Some power 49%
- Very little power 34%
- No power 3%
By the end of the session, however, when the question was asked once again, the audience’s opinions had shifted markedly, showing:
- A lot of power 33%
- Some power 56%
- Very little power 11%
- No power 0%
The machine shop owners in attendance had clearly gained important insights into this critical aspect of their business strategy. In closing, she quoted Jack Welch, former chairman and CEO of GE, “Costs are a matter of fact—pricing is a matter of guts.” Or, in Casey’s words, “Pricing is a matter of confidence.” Read this related article by Miles Free, director of technology services at the PMPA, to learn more.
