Financial Advice Pricing: 5 Questions To Ask Before Setting Up Your Pricing Capability 🙋
Successful pricing organisations, like GE, John Deere, Caterpillar, Shell, 3M know something most businesses don’t about financial advice pricing.
They know that if the goal is to drive profitable revenue growth and more margin dollars in highly competitive and disrupted markets, they need talent pricing teams to operate within flexible organisational structures. In addition, these companies regularly seek price advice from external firms and consultancies on how to align their price and revenue models and teams to a changing business model and a new way of operating.
However, achieving pricing and organisational agility is much harder to do in practice. As businesses and markets change over time, employees settle into their roles and ways of operating. Without the right financial advice pricing, the structure seems to happen organically. Or else, pricing decisions devolve and revolve intentionally around a handful of influential individuals in the business.
From an outside-in perspective, it’s often hard to figure out how and why businesses act the way they do. Yet, from an inside-out perspective, we become used to things over time. Why? Because it is human nature to enjoy the relief we get from our familiar surroundings.
When we don’t have any dedicated financial advice pricing, we question ourselves and the way we do things less and less: “It’s just how we do things around here.” “This structure worked in the past.” “There’s nothing wrong with our pricing.”
When everything seems to be going well (i.e., predictably) we believe the need for external financial advice pricing is low. Our organisations continue to operate, business gets done, we make sales, people continue to buy, things roll on.
But all of a sudden, a new trend, shift in the market or threat strikes the business. Then, everyone realises it’s not possible to succeed with their current realm of knowledge of structures. A handful of good managers and executives may realise the business would benefit from price advice to stop price and/or margin pressure from getting worse. However, many firms suffer in silence and operate in dysfunctional structures regardless of the daily margin loss they experience.
Admittedly, it’s not easy to take objective price advice on the chin when you are in financial pain or distress. What’s more, integrating a new pricing team within an existing structure isn’t easy and may even fail to drive results.
Change is daunting for us all. Managers know they should be weighing up and evaluating price advice, multiple variables and trade-offs. However, sometimes they can’t stomach the advice or are told to figure everything out on their own (by their boss).
Seeing the range of possibilities to fix financial problems amidst all the past precedents that exist, appears easy on face value. But in business, it’s difficult when situations become ambiguous. This includes problems with stakeholder relationships, team performance, price performance, unexplained expectations, new roles and definitions of success, career trajectories, and functions.
Financial advice pricing can seem costly. Change can be disruptive. However, the pain of inertia increases the longer you wait.
Moving with change is inevitable – whether you want to or not.
To help you along your journey, listed below are 5 questions to ask before beginning your design and integration process. In addition, we cover how to design, structure and integrate a pricing team; within the business in more detail in our e-book series. But here’s the quick, financial advice pricing guide to the questions you should be asking before taking further action.
QUESTION #1: When should we start the design process?
PRICE ADVICE: It’s never too early. A 1% shift in margin can equate to $1M in EBIT. It will cost you more to wait and see. Large businesses and ASX listed businesses; like BP, Winc, Wesfarmers, CSR, Repco, Toll, DHL, Oceania have all received external price advice to move from A to B. Some of them completely re-designed their operational system and pricing function to improve pricing capability for the next 5 years.
A cross-functional team managing your pricing requirements on a part-time basis is not the best price advice. A project team structure will not be enough to generate the ROI you want from pricing. And more often than not loses momentum.
If you are a company with annual revenue of $100M+, our price advice is to install dedicated pricing and/or revenue management team to set and manage price. The size and structure of the team are dependent on the size of revenue the team is managing. Also, on the challenges at hand. It’s a common mistake to under hire – and fail to stop margin leakage. Or overhire – and fail to implement the right structure or processes to drive more complex pricing outcomes.
It’s unrealistic price advice to expect employees with no dedicated skills. Or experience to manage and set prices in light of the potential upside/size of prize available, the complexity of product range, customers and market segmentation.
QUESTION #2: Who should help us design and manage the integration of the pricing function into the business?
PRICE ADVICE: It is important to have subject matter advisers contribute additional price advice to the design process, including price advice on team structure, team mix and diversity, specialist hiring processes, talent evaluation and assessment and team & software integration processes. We’ve seen several good pricing teams set up to fail which could have been prevented with the right price advice.
QUESTION #3: What’s the best way to assign the right people to the right function?
PRICE ADVICE: There are three key areas of price advice to help you assign the best people to pricing roles:
- Don’t just rely on CVs and interviews or past success to assign people to pricing teams. Use an evidence-driven approach to back up your decisions and feelings about someone.
- If you want to know how good someone is at pricing and revenue management, get them to take our pricing and commercial assessment. And benchmark their performance against relative industries. It’s better to know whether someone’s going to be a good fit for the role before they are placed in the role. They’ll appreciate getting constructive advice on their skills and development. Also, they’ll get a good insight into commercial pricing. And the challenges and outcomes they’ll be expected to achieve in their new role.
- Don’t just see recruitment as a method to fill seats quickly; we find recruitment is a great opportunity not only to educate.
- Engage future employees on the role and mission of pricing inside your business. So they know what they fit in and feed into the new pricing function.
QUESTION #4: What’s the best way to design a pricing function?
PRICE ADVICE: No matter how similar two functions may appear to be, there are always differences. May it be in leadership, strategy, structures, operations, styles or capabilities. This means it’s important to have customised price advice, design and integration process for a pricing function to its particular complexities and idiosyncrasies and grounded in the objectives of your business.
Proven pricing frameworks, team capability and evaluation tools and the process can help you bring together these functional differences. As a result, helping you design the appropriate pricing structure for your business. The entire focus of the process should be on value creation. Therefore, the organisational design approach must be flexible enough to match the unique requirements of the pricing function and business.
QUESTION #5: How can we break down resistance to change, and bring people along the journey?
PRICE ADVICE: Your teams and leaders are much less likely to resist changes to pricing strategy and operations when they’ve had a hand in shaping it.
To start cross-functional collaboration, leaders must seek external price advice and upward feedback from sales and other departments. It’s better to understand what people’s objections to change are and they address them. There is always something to feedback, communicate and information to share — if not decisions, at least the progress along the way.
It is a mistake to assume that the sales force will be automatically resistant to a pricing function. Oftentimes, sales are very welcoming of informed price advice and assistance from an external consultant and pricing teams to help them win more business. What they are resistant to is being told what to do without a clear mandate or vision supporting the directive.
The design and integration process should help you broaden your scope – it’s not just about designing and integrating, it’s about establishing a strong vision for change for teams to believe in. Moreover, the design and integration process can be a great way for teams to stop thinking in silos. And start working together to ask and solve difficult questions and challenges.
Additional financial advice pricing & tips:
You’ll know it’s time to start asking yourself and your team these questions (or seeking price advice) when business strategy and opportunity seem clear, people have bought in. And yet the company is slow, sluggish and taking ages to get things to do effectively.
Perhaps it’s repeating the same execution mistake or making new hires that repeatedly fail – often a sign of structural imbalance rather than bad hiring decisions. There may be confusion among function and roles, decisions may only happen at the top of the organisational chart and decision bottlenecks occur within latent power hubs. Or perhaps price implementations are slow, disorganised or unfruitful.
If any of these things are happening, it is time to do the hard but rewarding work of seeking financial advice pricing and creating a new structure, including designing a pricing team structure that drives sustainable profitability.
An organisational chart should follow an organisational structure, not the other way around. Our price advice is to take individual names completely off the paper until the structure is designed correctly.
Structure dictates the relationship of authority and accountability in an organisation. Structure predicts how the pricing team will function – and more or less if the team will succeed in its mission.
For this reason, a good pricing team and the price advice they offer the business can only be as effective as the structure support it. For even the best of us, it can be very challenging to operate within an outdated or dysfunctional structure.
Successful pricing organisations, like GE, John Deere, Caterpillar, Shell, 3M know that if the goal is to drive growth and more margin dollars in highly competitive and disrupted markets, they need to operate within flexible organisational structures. They also seek impartial price advice on how to align their price and revenue models and teams to a changing business model and a new way of operating.
Restructuring done wrong will exacerbate attachment to the status quo and natural resistance to changing pricing. We find that when businesses change their strategy without evaluating or changing their structure, price implementations become disorganised, slow and disappointing – i.e., limited EBIT gain or even margin loss.
Alternatively, we find that when businesses change their structure, strategy and even assign new roles to people but have not developed or updated their internal price management practices and processes, new teams soon struggle to drive better pricing decisions and results.
Without good processes and price management practices in place, even great pricing teams end up firefighting issues on a daily basis. And never really achieving the EBIT outcomes and results expected of them.
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