Smarter Pricing Techniques To Ensure Better Profits

Apr 19, 2021 | Growth Tips, Income

What if you could use smarter pricing techniques to ensure better profits this year?

Last week I held a quarterly Leader’s Edge peer group meeting where one member – Tim O’Connor, LCI Landscapes, MN – presented his new sales commission plan.

He had been working on it for a couple years now, and he was feeling very proud of what he created. And he should be, because it helped his firm go from unsteady profits (break even in some years) to a more consistent and solid 20%+ profit margin.

He had overcome a series of hurdles over the past couple years: first changing his own mind, then changing the mind of his sales team, and then seeing the change through to impact the financial results of his fast growing company.

Working smarter is key for growing your profits. Use these two tools in your pricing techniques this year. Share on X

As we drilled into how his team will hit their budget this year of 20%+ he shared two underlying tools.

1. Jeffrey’s Pricing Pyramid

He is implementing my pricing pyramid for raising margins on larger and smaller jobs. Like pebbles and rocks in a stone wall, he is fortifying his overall sales margins with high profit medium and smaller jobs.

2. Minimum Throughput

He is using a minimum throughput metric to guide all his labor heavy sales. Basically, any job that does not bring in enough profit per man hour must have its pricing raised to ensure a minimum throughput standard is met.

Throughput is defined as Net Net Revenue (Revenue minus the cost of subs and materials) divided by the number of hours needed for that job. 

Working smarter is the key.

According to Tim O’Connor, “We’ve been using the pricing pyramid to ensure each job achieves a minimum margin, and then adding profit to each estimate dictated by how short the job is. Then, once the estimate is set up properly, we look at the resulting throughput metric of that job, and if it is not achieving our minimum standard we need, we adjust the pricing accordingly in order to achieve our minimum standard. This ensures that high labor jobs carry enough contribution to make them worth while.”

These smarter pricing techniques, along with a kick butt commission plan, help ensure that Tim will enjoy a successful year.

Why work so darn hard if you and your team can’t enjoy the achievement you deserve?

Your Challenge:

Buying into the changes.

It’s hard to accept making changes in one’s company, especially if you have mistakenly set things up incorrectly or too easy for your team.

This makes it difficult to convince others to make changes. People don’t like to change especially when they feel forced and not in control, and this can hold you back as owner in believing in the necessary changes.

Change and leadership starts with you:

  • Believe that changes are needed. Understand that you can’t follow the same-old same-old.
  • See the benefits and explain to others so they can envision the benefits and how it improves their life ultimately.
  • Do the implementation needed to make the changes stick.

Believe it, See it, Do it.