Pricing is … a KPI
What KPI’s (Key Performance Indicators) do you track in your company? You are probably monitoring revenue, profit, certain expenses, and hopefully more. Do you use price as a KPI? If not, you should consider it.
Your marketing and development team created a product, built in value, and set a price to capture that value. Your sales department does their best to sell at that price. But what happens over time, as new competitors and technologies come into the market, the value our customers perceive relative to the alternative declines. They become willing to pay less.
If we are tracking our ASP (Average Selling Price) over time, we will likely see that it declines. When it declines too much, that is likely an indicator that market conditions have changed. Small decreases in ASP may be noise in the market or measurement, or they may be early indicators that the market is changing.
Another great use of price as a KPI, measure the average discount each salesperson uses. (You may want adjustments for volume, industry, segment or other factors.) This is an indicator of who is selling value and who is selling on price. Can you get one group to train the other? Better yet, publish the results internally. Salespeople are highly competitive and nobody wants to be on the bottom of that list. They will find a way to move their own ASPs up.
Other price metrics you may want to monitor include gross margin, pocket price (realized price after all discounts and considerations), level of variance in quotes, and more. Think hard enough about price and you’ll find that using pricing metrics can be a great measure of the health of your business.
Mark Stiving, Ph.D.
Photo by wwarby
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