How to run a pricing and margin review

List price is a published intention. Realised price is what the business kept, and the distance between them is where most margin questions live. Reconstruct it from invoices or contracts for a defined window, then net out every element that reduces the amount: volume discounts, promotional terms, extended payment terms, waived setup fees, and credits issued after the fact.

Group by customer segment rather than by product alone. The same product sold to a large account and to a small one often carries materially different economics, and an aggregate figure averages that difference away.

• Direct costs are usually available: materials, licences, subcontractor rates, transaction fees.
• Delivery effort is often the missing piece. Hours by segment, support contacts per account, or implementation days per deal will do if they are measured consistently.
• Costs of complexity include customisation, expedited shipping, unusual reporting requests, and non-standard terms. These rarely appear in a cost model and frequently explain a segment that looks profitable on paper.

State the method and its limits in the review. An estimate transparent about its assumptions can be argued with; one presented as precise cannot.

A segment average of healthy margin can conceal accounts sold well below cost. Sort accounts within each segment by realised margin and look at the bottom decile before looking at the mean. Two patterns are common: a small number of accounts priced under an old agreement nobody has revisited, and a group of similar deals where a discount was granted for a reason that no longer applies.

The average also hides a second question: whether the cheapest deals consume the most support. Where they do, the pricing problem and the delivery problem are the same problem.

• Win and loss reasons recorded at the time, rather than recalled later.
• Requests for features or service levels buyers ask to pay extra for.
• Competitive alternatives buyers mention, and what they say those cost.

Evidence rarely settles a price. It narrows the range in which a decision can be made and gives the team something to reason from other than the last negotiation anyone remembers.

1. Pick the move with the clearest evidence and the smallest blast radius.
2. Define who is affected, over what period, and what the expected effect on volume is.
3. Brief the people who will hear about it from customers before it is announced.
4. Set a review date and a measure of whether it worked, agreed before the change.
5. Change one thing, then look, rather than changing price, packaging, and terms together.

Discount governance usually belongs in the same conversation: who may approve which level, and what has to be recorded. Pricing that is set carefully and discounted informally drifts back within a quarter.

The example below is hypothetical and describes a pattern rather than a client engagement.

• Cost allocation is approximate. Fully loaded margin depends on allocation choices, and different choices produce different answers. Segment-level gross margin is the more stable base.
• Customer reaction is uncertain. No review predicts how a specific account will respond. Sequencing changes and watching early cohorts limits the exposure.
• Margin is not the only objective. Some accounts are worth holding at a thin margin for reasons of reference value or market entry. That is a decision to record, not a gap in the analysis.
• Reviews can become annual theatre. Without a decision and a review date attached, the analysis is repeated each year with the same result.

Pricing and margin work sits inside the Growth & Revenue capability, alongside the commercial decisions that surround it: which segments to pursue, what the offer includes, and how the number is carried. Where the constraint is demand rather than price, the notes on pipeline sizing address the volume side of the same target.