Sales price optimization can be a tricky thing to perfect. After all, if you charge too little, you might not make the profit you need. But if you charge too much, then customers might go elsewhere. So how do you find that happy medium?
Let’s discuss sales price optimization for B2B companies and how it can help sustain growth and profitability.
Sales Price Optimization: The Process of Maximizing Sales and Profits
Price optimization is the act of determining the most optimal price for a product. This is accomplished by looking at consumer and market research in order to balance what the consumer is willing to pay for the product and the desired profit margin.
By doing this, businesses can maximize their profitability while still providing a fair value to their consumers.
Price optimization requires the following data:
- Customer survey and behavior data
- Demographic and psychographic data
- Geographical market specifics
- Historic sales data
- Operating costs
- Demand fluctuations
- Competitive advantages and concerns
- Lifetime value and churn data
To find the best price point, businesses need to understand how consumers will react to price changes. This means stepping back and revisiting some basic economic concepts.
Your pricing can make or break your business. If you copy your competitor’s prices, you run the risk of a price war with your competition. On the other hand, if you set the price too high, you may scare away potential customers.
Price optimization is a data-driven process that helps you find the right price for your product or service.
Finding the perfect price for your product or service can have a huge impact on sales and profit. It can also help you achieve your growth and revenue targets.
Price optimization isn’t as simple as just raising or lowering your prices. You need to understand both your business and customers.
Price optimization can be a complex process, but having the right tools and understanding basic pricing concepts can help you create a solid pricing strategy.
This guide is here to help you create and apply a solid pricing strategy. Each section breaks down basic price optimization concepts so you can develop an effective pricing strategy for your business.
Whether you’re a new or established business, these tips and tricks will help you better manage your time.
B2B Price Optimization
Pricing in companies managing complex and multi-contract portfolios can be difficult.
Adding to the complexity of these markets is the influence of competitors, fluctuations in raw material costs, and regulations.
Dynamic pricing models take into account all of the external and internal factors that impact price and can adjust them in real-time.
The solution to this problem must be easy to use by all stakeholders involved.
Why is Price Optimization Important?
According to an Intelligence Node survey, 94% of online consumers compare product prices while shopping. This has caused retailers to optimize their prices to remain competitive.
There are many benefits to price optimization. You can generate more revenue and profit because you’re able to drive up sales.
When customers are happy with their purchase, it makes them more likely to return in the future. This improves brand loyalty and builds a positive image for your brand.
Price optimization keeps your business safe as well as your customers happy with fair prices. You don’t have to discount your products, and you don’t have to settle for lower profit margins. You can instead use smarter pricing methods, based on actual data that really matters.
So, actionable insight is the kind that really makes a difference.
Price Optimization vs. Automatic Pricing
Both price optimization and automated prices aim to address two completely different problems: sub-optimal pricing strategy and excessive cost of pricing.
It is important to understand the difference between the two to determine which is best suited for your company’s needs.
Pricing analysis is the process of analyzing your current pricing structure and making adjustments as needed. Automated price setting is a software tool that can automatically adjust the prices of your products/services based on a set algorithm.
By implementing an automated pricing strategy, we are improving both our efficiency and speed.
A price optimizer changes your pricing structures to maximize some objectives while staying within certain limits. This saves time and money by optimizing your prices.
When implementing software to optimize our prices, we are essentially turning our manual process of setting our prices on autopilot. Not all software that automates our prices is actually optimizing our strategies. It’s important to distinguish between the two when choosing the best tool for our business.
Both automated and dynamic pricing models could be considered ‘price automation’ if prices are changed frequently.
Price Optimization Models
If you look into pricing models, you’ll find that there are two schools of thought. One says that you should charge more for premium products, while the other says you should lower prices for low-demand items.
If you’re into numbers and like to crunch them, then you might be interested in a pricing model. These models are designed to help you figure out the right price to charge your customers.
Here’s a quick rundown of each.
Pricing Strategy Models
Before getting into different pricing models, it’s important to distinguish between a pricing strategy and price optimization.
Pricing strategies are used to set the right price for a product. Each has its pros and cons and is best used in certain industries or businesses.
The sales pricing models tool helps you plan your sales prices based on a number of different factors. By seeing how each factor impacts your profits, you can make an informed decision about which model to use.
After you’ve selected a pricing strategy, it’s time to optimize your prices to make sure they fit your goals. Part of any pricing strategy is setting an optimal price, which means making sure your prices for products and services match what you’re trying to achieve.
Here are a few examples of different pricing models:
- Captive product pricing
- Cost-plus pricing
- Loss leader pricing
- Competition pricing
- Dynamic pricing
- Freemium pricing
- Hourly pricing
- Demand pricing
- Price skimming
- Bundle pricing
- Psychological pricing
- Even-odd pricing
- Penetration pricing
Regularly analyzing your pricing structure is important to ensure that your prices are still the best they can be. There are several different options to choose from, so you may need to switch models as your company grows.
For instance, you might consider changing up your model when launching new products, altering your strategy, or adjusting your prices.
Pricing Optimization Models
The optimization model uses customer data, demand, and other variables to calculate optimal pricing.
Using optimization models, you can determine the best price to charge for your product based on demand, cost, and other variables.
These pricing strategies have been developing for years, with recent advances in AI and ML changing the way we determine the best price.
The pricing tool allows you to set up an initial, discount, or promotion price for your product without requiring an analyst to spend hours on spreadsheets.
Here are the steps to using a pricing optimization model effectively:
- Consider a marketing analytics solution. Some tools can tell you what features customers like best, which can help you create more targeted marketing campaigns.
- Gather data from your previous sales, including previous promotions, competitors’ prices, and inventories, as well as customers’ demographic and geographic information.
- Establish your price goal, and determine the rules for the modeling process.
- Run your model, input your data, and tweak it as necessary.
- Once you’ve gathered all the results, make sure to go over them with your pricing and sales teams. Make sure you all agree on what steps need to be taken to implement the new pricing structure.
- Keep track of results and update your data continually to optimize prices. Pricing tools should monitor your competitors’ prices to make sure you remain competitive while still meeting your revenue goals.
Price Optimization Software for B2B Companies
Pricing software is making it easier for companies to plug in data and determine if the current prices are hitting the target. Each company needs different types of software for their business, especially regarding business-to-business (B2B) and business-to-consumer (B2C).
Since businesses buy fewer products than consumers, it’s harder for marketers to find information on consumer buying habits, pricing, and demographics.
When setting prices for your products, it’s best to use a price optimization tool that bases prices on elasticities.
When it comes to pricing, B2B businesses can benefit from using elasticity-based tools. This allows them to optimize their prices by selecting a range that is optimal for their quotes. Additionally, price optimization tools can be seamlessly integrated with CPQ and CRM software for a streamlined sales process.
Companies that sell to consumers (B2C) often have problems determining the optimal price point for their products.
Price Optimization can be a useful tool for maximizing your profits. This ability allows you to see how altering your prices affects your sales.
By analyzing things like customer history, demographics, and purchasing habits, companies can better understand what their customers are willing to pay for.
When it comes to price optimization software for B2B companies, there are a few things you’ll want to keep in mind. First, consider integrations with your current systems. You’ll also want to make sure the software is user-friendly and has all the features you need. With that in mind, here are a few software options that may be a good fit for your business.
Price Elasticity of Demand
In economics, the price elasticity of demand is a measure of how responsive consumers are to changes in the price of a good or service. The formula for calculating the price elasticity is:
Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price
That formula is used to calculate how a change in price affects a product’s supply or demand for it. If the demand for the product doesn’t change when the price is raised, the product is inelastic.
If demand for a product changes when its price does, it’s considered to be elastic. For instance, if gas prices rise, people will still buy gasoline — making it an inelastic product.
An inelastic product does not see much change in sales when its price shifts. Elastic products, on the other hand, will see a significant change in their sales volume when their prices change.
This information can be key to successful price optimization as it helps to understand how customers will react to price changes. This can allow businesses to make informed pricing decisions to optimize their profits.
Now that we’ve gone over the basics of pricing, let’s walk through how to find your optimum price.
Perfecting Your Price Optimization
Finding the best price for your product or service can seem like a difficult task. But if you set your goals and gather historical data, you can work to achieve your goal more efficiently.
From there, it’s a matter of finding software that can analyze your numbers, keep an eye on your competition, and help you reach your objectives.
Keep in mind that pricing is an iterative process. It can’t be set and forgotten.
Pricing your products is a tricky business, but very important. Setting goals and making plans will help you determine if your prices are working for you. If not, then it’s time to change them. With enough trial and error, you’ll eventually find the perfect price for your offering.
If you’re looking to perfect your sales price optimization, then these tips will help you get the most out of your pricing strategy. By knowing your costs inside and out, considering what the market will bear, being flexible with discounts and promotions, and always keeping an eye on the competition, you can optimize your prices for maximum profitability.