For many organizations the difference between list price, invoice price and pocket price can be significant.  This presents opportunities to understand exactly how hard discounts, soft discounts and an ever expanding list of services impact cost to serve are profitability.  To address the margin leakage it is critical to measure and identify specific areas of opportunity and develop an action plan to address it. 

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• What To Expect
• Case Study

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Objectives

Outcomes

• Identify key sources of price & margin leakage
  
• Analyze the economic impact of price and margin leakages
  
• Identify specific opportunties to reduce margin leakage across products and customers
• Develop an action plan to address price and margin leakage opportunities

ROI

• The impact of a well executed discount management program can be very significant.  We have seen returns on investment ranging from 10x - 20x. 
• Margin improvements typically occur as a result of cost reductions or through a combination of putting in place up-charges or raising prices to cover the added costs

• Clear understanding of major sources of price and margin leakage through customer level margin waterfall analysis
• Plan for addressing margin leakage opportunties
• Ability for on-going measurment of price and margin leakage

Watch Outs

• Making changes is never easy.  Expect both internal and external pushback 
• Allocating the right level of costs to a specific account can by a bit tricky 
• You may need to get creative on how you gather some of the relevant data to paint an accurate picture

$500 Million Dollar Electrical Components Manufacturer

Challenge	Solution	Result
Customers demanded greater levels of service from the manufacturer to compensate for internal cost reduction cut-backs and lack of proper planning As cost of serving customers began to increase margins declined Manufacturer needed to understand which costs and customers where most responsible for dragging down margins	Identify all sources of margin leakage at the customer level Measure the magnitude of margin leakage for each customers  Develop up-charges for requested services that fell outside contractual obligations Communicate up-charges to customers Implement up-charges Monitor cost to serve	As a results of having more deteailed insights on cost to serve, the manufacturer was able to negotiate considerable price increases in exchange for higher levels of service during new contract negotiations Through a combination of up-charges on non-contracted services and price increases the manufacturer was able to improve profits by $3 million over a 12 month period

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