PricingBrew

Insights & Tips

Already a subscriber? Login

Become a subscriber and unlock an information arsenal focused on making your pricing efforts more effective.

Employing the 80/20 Rule to Manage Pricing Exceptions

It’s a common knee-jerk reaction for salespeople to focus on increasing volume by offering steep discounts on every sale – even if it means sacrificing profitable margins. One way to mitigate the risk of excessive discounting is to establish a pricing system that balances volume incentives with well-defined boundaries that sales staff must operate within.

Ideally, in an effective pricing system, the framework should provide guidance for as many as 80 percent of sales. This guidance should consider a comprehensive range of factors, including the type and size of the customer, the market and the nature of the opportunity. The direction should be clear and unequivocal, providing sales staff with “guardrails” that establish minimum and maximum prices or margins. Sales staff can bounce between these guardrails as appropriate, but they should not be allowed to go above or below the established boundaries.

For the other 20 percent of sales, be prepared to manage the exceptions. For these outliers, the framework allows pricing managers to enter the conversation and work with the sales staff and perhaps even the financial team to develop a strategic price appropriate for a specific situation.

By limiting exceptions to no more than 20 percent of the time, you’ll be able to equalize the competing interests of volume versus margin far better than a one-size-fits-all pricing system. Sales staff will still have the flexibility to manage the majority of sales on their own, allowing them to meet the needs of specific customers as well as their own particular quota goals. But the boundaries you set will prevent those individual goals from overriding your company’s high-level goals.

Every business is different, so the 80/20 framework that’s right for your organization will depend on the type of selling you do. If your business is list-price driven, your pricing system may be able to accommodate higher volume incentives. If you’re in a business where price is highly customized, then your framework may need a more aggressive margin component.
Implementing this system may take some time, as well. Achieving the right balance of guidance and exceptions is a process that often requires fine tuning. It also requires an extensive amount of data and knowledge in order to put together a sustainable system that produces actionable, accurate and real-time insights.

Whatever the framework you decide upon, the 80/20 structure will provide sales staff with the latitude they desire, while protecting the profit margins your organization needs.

For more details on how to develop guard rails for your team and establish an 80/20 structure, check out this article.

Get Immediate Access To Everything In The PricingBrew Journal

Related Resources

  • Navigating the Pricing Technology Landscape

    Given the pace of change, it’s increasingly difficult to keep track of the various pricing technologies and what they’re best used for. In this recorded training seminar, we discuss the latest trends and developments and how different types of solutions compare.

    View This Webinar
  • The Anatomy of a Successful B2B Pricing Analyst

    What key competencies are most important for a B2B pricing analyst to have? This guide covers PricingBrew Network research into the 21 most important attributes, skills, and capabilities for B2B pricing analysts to develop or possess.

    View This Guide
  • There's More to Profit Than Price

    For many pricing teams, expanding their perspectives from "pricing" to "profitability" is the key to maximizing effectiveness. In this on-demand training session, we expose and explore five of the other powerful growth levers that really matter in B2B environments.

    View This Webinar
  • Advancing Your Career in Pricing

    There's never been a better time to be a B2B pricing professional. But when it comes to your career, you can’t just hope that good things will happen in the future. In this on-demand webinar, learn how to take charge and make good things happen.

    View This Webinar