Case Study: Redundancy
A client came to me because their customers were consistently pushing back on price. Yet, when pressed, their customers couldn't give many specific examples of which areas were out of line. The company found itself discounting heavily to stay competitive, pressuring margins since it still resourced to the bloated budgets.
The CFO was "99% certain" the company's pricing model indirectly charged for the same services in multiple places. I asked why he was so sure. Simple- "everyone", including his pricing team, knew it and told him about it...but everyone was too busy to investigate and fix the issue.
I asked the CFO to introduce me to the "everyones" who knew what the issues were. 2 weeks and a dozen Teams meetings later, we had a marked up version of the pricing tool with a plan for eliminating the redundant pricing sources. About a month later, the redundancy (and other previously unknown) issues were resolved and the results were successfully back-tested against numerous recent bids. The updated pricing tool went live soon thereafter.
The updated pricing was nearly 10% lower (on average) than before, strictly from stripping out areas of redundancy (see examples below). Not surprisingly, this figure correlated to the customer feedback being received over recent months. Discounting was dramatically reduced, given the company's new confidence in accuracy of its pricing model.
Just as important- last I checked in, the company was performing this review on their own every 6 months.
So, How Does Redundancy Happen?
Redundancy in pricing does not happen overnight. It creeps in gradually, as companies expand offerings, change leadership, acquire other companies, add or split roles, and/or lack disciplined pricing governance. Examples relevant to this case study:
An expansion into new regions results in pricing multiple people to manage processes that used to be managed by one person.
An acquired company's pricing units are rolled into the integrated company's pricing model without factoring out aspects that no longer apply as a combined company.
A role is split into multiple specialized roles which becomes extra headcount priced into projects.
New technologies are priced into bids but the expected resulting labor efficiencies are not accounted for.
A new department leader is told by his or her team that they never budgeted for enough hours, so they add hours in places they don't belong.
If your pricing model is relatively complex, and you haven't scrubbed it in a while for redundancy, now's the time to get it done.