Pricing can be a game-changer or a stumbling block for companies aiming to scale and attract investment. Kristoffer Cedfors, Senior Director of Commercial Excellence at Verdane, has spent years honing his expertise in this area. Drawing on his background as a management consultant and his tenure advising companies within Verdane’s Nordic-European growth equity portfolio, he highlights the top five pricing mistakes companies often make and offers actionable steps to correct them.
So, why listen to Kristoffer? He brings more than a decade of experience across various industries, focusing on pricing strategy. Having consulted in management for six years and worked closely with Verdane’s portfolio for 2.5 years, Kristoffer knows the common pitfalls and how to avoid them.
While advising and integrating pricing strategies, Kristoffer has noticed recurring issues that companies face. This isn’t a step-by-step pricing manual but a set of high-impact areas where you can start improving.
1. Lack of a documented pricing strategy
Surprisingly, few companies have a formal pricing strategy in place. Without one, companies run into significant risks:
- Uncertainty about how their pricing compares to competitors
- Difficulty in differentiating from competitors
- Insufficient customer insights due to a lack of investment in understanding their needs
- Limited knowledge of the value provided to different customer segments
A pricing strategy doesn’t need to be complex. Kristoffer emphasizes using Roger Martin’s strategic questions: What’s our winning aspiration? Where do we play? How do we win? Knowing if you’re a premium or budget option and aligning your strategy accordingly is key. Understanding your customers and establishing processes to capture insights will get you 80% of the way there.
2. No formalized pricing decision forum
Who owns pricing decisions in your company? Often, no one truly does, leading to scattered and ineffective practices. Sales and product teams may have conflicting views, and companies miss opportunities to monetize effectively.
The solution is to establish structured pricing meetings, whether quarterly or annually, involving senior leadership, sales, product teams, and the CEO. These meetings should focus on capturing value and pushing boundaries. For instance, if a company never loses deals on price, it could mean they’re leaving money on the table. Having a structured feedback loop is critical to refining your strategy.
3. Inconsistent discount guidance
When there’s no guidance on discounting, sales teams end up setting prices ad hoc, often without the tools to sell on value. This leads to misaligned pricing and lost revenue.
To address this, companies should implement discount guidelines and provide tools that emphasize value. Develop a system to ensure sales reps adhere to pricing strategies. Make discounting policies part of the sales training and link them to long-term value. To mitigate risk, use scatter plots to harmonize prices and avoid excessive discounting. Align incentives with pricing objectives to encourage sales teams to prioritize value over volume.
4. No history of price increases
If a company has never increased prices, it could be a red flag. Legacy customers may be underpaying, or price stagnation may point to missed opportunities.
Kristoffer advises analyzing customer segments to identify pricing discrepancies. For example, if one customer pays $10,000 and another $20,000 for similar usage, there’s potential for an increase. Roll out price changes thoughtfully, using contract expirations as opportunities. Test different communication strategies to minimize churn and learn what works.
5. No price indexation in contracts
Many companies lack price indexation clauses in their contracts. Without these, companies miss out on regular, predictable price adjustments. This creates challenges for investors, who must work harder to drive ARR growth. Including a price adjustment indexation clause is straightforward. As contracts are updated, ensure they account for regular price adjustments. The goal isn’t a perfect playbook but a set of executable actions that bring tangible results.
Kristoffer concludes with this crucial reminder: These five areas can be improved quickly to make your company’s pricing strategy investor-ready. Take action and watch how it transforms your value proposition and growth potential.
