As a savvy investor, you know that raising prices is the fastest and easiest way to boost the value of your portfolio. Yet many hesitate to take this step.
The core issue lies with portfolio company executives who resist price increases. They are afraid of bad outcomes. They don’t want to take the risk.
While you could leverage your influence to force price increases, that approach undermines relationships and accountability. Savvy investors know forcing change rarely leads to sustainable results.
This delicate balance played out recently with one of my clients. Through several conversations, he had convinced the executive team to increase prices by about 13%. However, he had a strong belief that the company could sustain a 30 to 50% price increase. Normally, I wouldn’t recommend such significant increases, but this company had some exceptional circumstances. They hadn’t raised prices in years. There was almost no competition. Most importantly, the buyers passed the costs on to the end customer who had to pay them.
To bridge this gap, the investor brought me in for a Bootcamp with the executive team. As usual, we dove deep into value, how and why their buyers make purchase decisions, and how that affects willingness to pay. The executives realized there was much more room to raise prices. The outcome was they raised prices on current products by 30%, and they crafted two new products (very similar to the original with an additional valuable feature) and charged dramatically higher prices on those. The blended ASP came out to about a 50% price increase.
This approach works because we don’t start by talking about price increases. We focus almost exclusively on the value we deliver to customers. What problems do we solve, and what results do we deliver? If they don’t buy from us, what will they do? For B2B, we go the next step and estimate how much additional profit our customers make. After we understand value from the customer’s perspective, price increases are much easier to justify externally and embrace internally.
While investors often sense more pricing power than their portfolio companies realize, the key to capturing it is starting with value. Pricing is much easier after the company deeply understands how its buyers perceive value. Contact us if you’d like some help. It’s what we do.
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Tags: pricing, pricing foundations, pricing metrics, pricing skills, pricing value, value, value-based pricing
