Price and Condition Systems "Pay for Performance"
Inform yourself about more profitable sales activities through a clearly performance-oriented condition system!
In B2B businesses, in addition to the list price, the customer conditions, thus the total sum of discounts, refunds, bonuses and other monetary benefits, are decisive for the profitability of customer relationships.
Often the conditions have grown in the course of the customer relationship, new special conditions have been added and carried forward - the originally clear-cut system has become a jungle. Additionally, in historically grown condition systems the risk of an excessive spread of conditions increases. As such few customers purchase at significantly lower prices than others.
The consequences of this:
- High earnings risk in the event of mergers or information exchange on the customer side
- Price pull: Grown condition systems continue to overflow, net-net prices are falling and customer contribution margins are continuously melting away
- High internal efforts to handle the large number of special agreements
- Poor predictability of condition payments and therefore uncertainty about the development of future earnings
"Pay for Performance" has proven itself
In order to avoid the risks, it is necessary to fundamentally review one’s own price and conditions system every 4 to 6 years.
When it comes to redesigning condition systems, the principle of "pay for performance" has proven its worth in the market. Pay for performance means that conditions are used exclusively to incentivise special, measurable customer services. Existing condition payments without any real performance orientation are eliminated to make the system simpler and fairer. The principle of "no (condition) service without appropriate consideration" therefore counts. In addition, we calculate in our projects what amount a certain consideration is objectively worth in order to provide uniformly standardized incentives in the new system. Based on this, a simple, transparent and performance-related price and conditions system can be designed, which should definitely be documented in a manual for the sales department.
The Right Implementation with a Sense of Proportion
The most important step towards the pay for performance system is the preparation of the implementation.
It begins by envisioning the specific situation of each customer. How does he currently shop? How would he have positioned himself if the new price and conditions system were already in place this year? What services could he improve in order to optimize his net-net price? Capturing this, we have developed customer simulation calculations to run through various scenarios at the touch of a button.
Based on this, we develop a launch plan and conduct sales trainings. In this way, each key account (client manager) is specifically prepared for the negotiations, the argumentation of advantages of the new system are trained and possible objections from the purchasing side and respective reactions are coordinated.
The effects of changing the conditions towards a pay for performance system are sustainable, as the results of benchmarking from projects we have accompanied show (see figure):
- The number of different condition types for customers is significantly reduced.
- The performance orientation of the conditions is significantly increased, depending on the market strength up to 100% are possible.
- The decisive effect: on average, profitability was increased by 1.9% of net-net sales.
We support you from the Analysis to the Sales Training
Batten & Company supports towards the new pay for performance system in a modular approach - from the first analysis and potential assessment to the implementation phase. This means that you can decide at which points you need support from our experts and which steps you want to take in-house.
Would you like to learn more? Then simply get in touch with one of our contacts and arrange a non-binding meeting.