Pricing and Profitability Management: A Practical Guide for Business Leaders

Conducting Transactional Profitability Assessments

All too many organizations have become comfortable managing at an aggregate level. In the past, this was necessary because the technology, know-how, and statistical tools to mine data efficiently at a detailed level simply did not exist. This, however, is no longer the case. Organizations can now take advantage of technological advances, beginning with a transactional profitability assessment (TPA, also known as “transactional analytics”). This basic analytic seeks to identify opportunities for an organization to improve performance through an enhanced understanding of transaction-level profitability. A unified data set brings exceptional—and invaluable—visibility to the core of an organization's business models. A TPA is designed to identify common pricing problems that can result from inefficiencies in sales, processes, policies, and cost to serve through close analysis of internal pricing practices and data.

Though businesses often factor supply, demand, and product positioning strategies into their decision making, many leave profit on the table at the transactional level, where product meets customer. Invoice price is generally used to measure revenue. Unfortunately, the difference between invoice price and actual price (after discounts, rebates, and other customer concessions are factored in) can result in significant reductions to the bottom-line profit. Businesses are not leaving this money on the table on purpose. The ...