Check a price rise before you make it

Situation: Sam is raising his prices by 4% in January. Most days a rep asks to give a customer 7 or 8% off, and Sam says yes.

Example conversation with a made-up company.

First principles on why we price this way. … Everyone gets the same list price, the reps can discount up to 5%, and anything over 5% comes to me for approval, which is most days. Our main supplier just put prices up, so we're adding 4% from January. Before I do that I want to know if the whole way we price still makes sense.

TigerTiger › think

Loaded skill: First Principles

… Approvals reaching you most days. This is the strongest signal. If the exception is a daily event, the list price isn't really the price. …

… Think of the last handful of requests over 5% that reached you. What were customers or reps usually asking for (volume, a competitor's quote, a long-standing relationship, something else), and what did you usually say?

Mostly three kinds. Bigger shops wanting more off because they buy more. Shops quoting the competitor who delivers same day. And restaurants that have been with us for years and say they'll go elsewhere. I say yes to nearly all of them, maybe nine in ten. Usually 7 or 8%.

That tells us a lot. …

1. The 5% limit isn't doing its job. If you say yes nine times in ten, at 7 or 8%, then the real rule is "ask, and you get about 7 or 8%." The approval step costs you time most days and almost never changes the answer. …
…
3. The 4% lands unevenly. Customers who ask for the discount keep paying about 7 or 8% below list. Customers who just pay list take the full 4% rise. So the people who push back protect themselves, and the people who don't, possibly your quietest and most loyal ones, pay the most. …

About 60 ask regularly, and they're the bigger ones, maybe 40% of our sales. The other 240 or so pay list, mostly small shops. …

…

A. Write the discounts down. Publish two or three price levels by monthly spend. Reps give the level a customer qualifies for, with no approval. You only see requests outside the levels. The 60 get what they get today, but openly, and your daily approvals mostly disappear. …

A feels right. I'll get Jen to pull the last three months of invoices this week and we'll do the margin check before we set the levels.

What changed: Sam was about to raise prices for everyone. Now he can see that the small shops that never ask for a discount would pay for it. He'll set a few price levels based on how much each customer buys a month, so his reps can apply them without asking him.

Try it: Sam typed "First principles on why we price this way." (skill: first-principles)

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