What does it mean to "benchmark" your organization's pricing?
If your Board or CEO asked you to do it, you'd probably check your selling rates against your competitors and report back. Maybe you'd extend the analysis to the total unit pricing of key items.
But does that actually encompass your total pricing? No.
I've seen clients whose local currency cost rates were in line but were converted at outdated Forex rates which hit their margins by 5% in an important region. I've seen clients whose unit price for a key revenue driver was in line, but the pricing tool defaulted to a wildly exaggerated number of units for bidding. I've seen companies with below-market rates try to charge 8% annual inflation on 5-year projects. The list goes on...
Benchmarking needs to encompass your total pricing, which includes not just your rates and hours but your unit defaults, policies for inflation and Forex, and other key factors.
Consider scoping your benchmarking to cover as much of the below as possible:
Hourly selling rates by geography and position level
Hourly cost rates by geography and position level and how those rates are calculated (a quirky cost model can lead to strange pricing decisions)
Level of effort assumptions for service areas that drive the majority of your pricing
Unit quantity defaults for key price drivers
Unit fees for software / technology licenses and subscriptions
Policy for applying inflation on longer-term projects
Policy for currency conversions
Payment terms and advance payment policies
All the above should be tailored as industry-specific, and sometimes customer segment-specific, as possible to get actionable feedback.
You can do this in-house through obtaining feedback across senior people on your sales and operations team who interact with customers and come from a sampling of your competitors.
Consultants and data providers also provider this service, just make sure the provider can cover all elements of your total pricing so that you get maximum value from the engagement.
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I provide total pricing benchmarking to clinical research service and technology providers. Book a meeting or contact me for details.
