The traditional cost plus pricing model was costing a staffing agency lost profit opportunities. PriceGain helped this client differentiate its services to improve profits.
Situation: The client wanted to move away from the cost plus pricing model.
Our client had been using a cost plus price model since they were founded. The hourly rates were only differentiated by profession and not by qualifications or experience. Our client was making the same margins with small customers as with very large customers without taking the volume of work or service levels into consideration. They had no established method for increasing margins by providing additional services since they often provided those services already at no additional charge. Could a new pricing strategy improve profits?
Solution: Improve the pricing model based on market research and analysis of historical sales.
We surveyed customer buying patterns and analyzed our clients transaction histories. This clearly showed that customers were willing to pay more for value-added services as well as for more qualified people. We conducted a series of interviews with the clients sales team and this revealed major revenue leakages. In addition, despite being based on cost plus, the pricing model was not taking into account the additional costs of working on small assignments, even though most of the sales teams time was devoted to managing the small assignments.
We developed a new pricing strategy based on price differentiation in several dimensions. The new strategy takes the size of the assignment and the annual volume of business from each customer into account. We developed a customized pricing tool that the sales staff uses to produce profitable quotes easily and also helped eliminate the main sources of revenue leakage.
Results: Profits are up
Senior managers are focused on the impact of smarter pricing. Profits on small assignments improved. The new pricing tool supports a more profitable pricing strategy and is in daily use. The salespeople have found that it helps them have more effective and productive discussions with their customers as they close new business.