A price is decided, not calculated

The problem it solves

The price of almost every small company has a history rather than a method. It was set at the beginning by looking at what the business down the road charged, adjusted once when a supplier raised theirs, and has held ever since out of habit and out of fear of losing the clients already there.

Meanwhile the structure that price was supposed to carry changed completely. People were hired, more space was leased, services that used to be thrown in became part of the job, and the price stayed where it was. The company notices late, and notices in the wrong place: in the bank, where it reads as a collections problem or a volume problem. Read that way, the response is to chase more volume at the same price: more work for a structure already undercharging. Every year the price goes unreviewed, the adjustment that will one day have to be explained to clients grows more abrupt.

And there is a pricing decision taken every day that nobody files as one. The discount is authorized on a call, to close, with the best of intentions, and it stays outside every conversation about pricing because it is mentally filed under sales. Clients learn to wait for it, and the team learns that the list is negotiable. A company's price list is usually a fiction. The real price is whatever comes out of that call.

What it covers

The workshop starts from a distinction the title sums up: the spreadsheet serves only one of the decisions that make up a price, and the others get taken with judgement, with evidence or with fear. So it separates three decisions that in practice get taken together and badly. The first is the floor: what a price has to cover for the work to be worth doing at all, including what almost never gets charged, such as the owner's time, the rework you can predict, and the cost of being paid late. The floor does not say what to charge. It says below what it makes no sense to accept. Each participant calculates it in the room for one of their own lines, using the costs, payroll and fixed expenses they brought, even in draft.

The second is value: what changes for the client who buys, and how much of that can be supported by something other than an assertion. The exercise is to take the argument the company already uses and strip out the adjectives; whatever is still standing, if anything is, is what can be defended in front of a client who compares. The third is position: where the company sits against the client's real alternatives, which include doing nothing and doing it in-house, and which do not always match the competitors the company has in mind.

The session closes where price is actually lost. Participants bring discounts they granted recently, identify what was given up and in return for what, and write a policy: who may discount, how far, against what concession, and with what record. Then comes the question of how an adjustment is communicated to existing clients, what is said, to whom first and in what order, and the first of those conversations is practiced in pairs. No borrowed figures and no models. Everyone works on their own catalog.

Nobody leaves with a price dictated from outside. People leave with the floor calculated, a value argument that survives the question of how anyone knows, a policy that turns the discount into a decision with an owner, and an order for talking to the clients already there. ALUD treats the floor as a Finance question and the position as a Growth one, and keeping those two questions apart is what stops cost from deciding what the market should decide.

What participants learn

• Build the price floor for one of your own products or services, including the costs that usually go uncharged.
• Separate a value argument from a claim of quality, and support it with something checkable.
• Position the offer against the client's real alternatives, including not buying at all.
• Write a discount policy with authority, limit and concession defined.
• Decide how and when a price adjustment is communicated to existing clients.

Agenda

1. 01The inherited price: how it was set and what it was carrying then
2. 02The floor: what a price must cover for the work to be worth doing
3. 03Costs that go uncharged: owner's time, rework, late payment
4. 04Value: what changes for the client, and how to support it without adjectives
5. 05Position against the client's real alternatives, including not buying
6. 06The discount as a pricing decision disguised as a sales one
7. 07Discount policy: authority, limit, concession and record
8. 08Adjusting prices with existing clients: what is said, to whom, and in what order

What the organization leaves with

• A price floor calculated for one of your own product or service lines.
• A value argument per offer, with the evidence that supports it identified.
• A written discount policy with authority and required concession defined.
• A communication plan for the price adjustment, with the order in which clients are approached.