Price Automation, Analytics and Calibration: What’s That!?
Price automation, analytics, and calibration are three pieces of the pyramid of modern price management best practices. Take a look at the differences of each piece, and how they build on one-another.
Automation is the foundation of your price management pyramid. This is the stage where you make your pricing decisions, define your pricing rules, and build it into a system that generates prices and quotes and tracks their performance.
Who is price automation good for?
- Small operators:
- Owner operators who take just a few minutes to plan out their pricing can benefit from quickly issuing quotes in seconds on the go, in meetings, or at the office, without hassling with record keeping.
- Growing Companies:
- Growing companies that equip their sales team with automated pricing, quoting and contracting technology can see big returns on investment; sales professionals spend less time on quoting, make fewer costly mistakes, and have more bandwidth for building relationships. Prices and pricing rules can be controlled centrally across territories.
What are the benefits of price automation?
- Save time & money calculating prices, issuing quotes, and managing contract execution
- Reduce costly quoting errors
- Centralize & control prices and pricing rules across service areas, territories, etc
- Rapidly access pricing for a variety of services
- Provide instant quotes to website visitors
- Increase quote success rate
- Build a foundation for price analytics
Stacks of price calculations and quotes won’t tell you if your rates are too high, too low, or just right without two critical pieces: 1) a firm understanding of your price strategy, and 2) a sound analytical approach to understand your data and leverage that data to answer price questions that can make a profound difference on growth and profitability.
Analytics is about the review of your price performance data, and the asking and answering of key questions. The best analytical process will involve with asking the best questions, finding answers in your data, refining your questions, and repeating this process as you develop a pricing hypothesis and then a price strategy to prove your hypothesis.
Generally, your price strategy will be to either maximize profits or maximize market share. You can read a lot more about price strategy in our article, How to Price Like a Boss.
Key questions a sound analytical process should be asking include:
- What percent of deals am I winning?
- How does my win rate compare across service options? Are we succeeding with a particular niche? Should we focus on that niche, or revise our efforts to improve weaker performing areas?
- What is my optimal win rate? At what win rate am I charging the optimal price?
- What is my optimal price, given my strategy and goals?
Once you’ve got a firm grasp of your data, you can begin to calibrate price. This is about adjusting your pricing to improve performance in accordance with your goals. The calibration process can be as simple as “this month I won half of my quotes, and last month I won all of them, so if I price in the middle I should win more deals at a better price.”
Some key points on calibration:
- It is often prudent to make small adjustments, and repeat this process rapidly. You are more likely to get your prices sighted in properly this way, and there will be less costly errors along the way. (This does, however, depend on your data – sometimes drastic action is called for).
- Before you begin price calibration, review your conclusions carefully. Having great data is critical, but counter-checking with experience, a gut-check, and subjective information can clarify questions that data alone cannot. For example, you’re losing a lot of deals; perhaps you conclude that price is too high, or perhaps you discover after additional inquiry that you’re team is getting the quotes out too late and missing the window of opportunity. Selling your services is about more than price setting.
- Get input from others. Fresh eyes can find things quickly that you may be overlooking. Having a fresh set of eyes look over the information and stress test your ideas and conclusions can be a transformative step in your process.
Is It Worth It?
Is all this work with it? Business is growing, business is good. Studies show that a 1% improvement (note this is “improvement”, not “increase”) lead to an average 11% boost in profit. It’s hard to find an investment with a better return than an investment on sound pricing.