Is your “simple” pricing complex? Part 1

Embracing the Complexity of Pricing and Configuration

In today’s dynamic business environment, pricing strategies must evolve to keep pace with increasingly complex deals. Larger deals have larger risks; as they involve multipart dynamic solutions, pre-purchasing at scale, dependencies on external products, and changing costs and availability of inputs, as an example. Moreover, As-A-Service consumption models and variable timed cost inputs introduce variability throughout the contract term. To mitigate these complexities and risks, new approaches to CPQ platforms and service contract models are required in order to maximize revenue yield and eliminate deal risk.

Advanced Pricing Engine (APE): Part 1

Adapting to Modern Pricing Needs

In today’s world, everyone seeks consumption-based or as-a-service pricing models that are simple and easily understood. However, creating these simple rolled-up prices involves hidden complexities that need to be properly governed, calculated, and deployed. This is where servicePath™’s Advanced Pricing Engine (APE) comes into play, offering a revolutionary approach to handling complex pricing scenarios.

Introducing the Advanced Pricing Engine (APE)

APE is designed to address the needs of finance, sales and sales operations, as well as presales professionals by enabling them to define and manipulate deal structures with precision. By allowing dynamic adjustments to pricing and quantities, APE ensures that your pricing strategy remains accurate and relevant throughout the entire deal lifecycle. Sales teams can build, execute, and configure complex solutions seamlessly. The hard work is done behind the scenes, ensuring pricing, discounts, and technical hurdle rates are adhered to while guiding the salesperson and customer to a simple solution of X dollars per unit per month.

Benefits of Dynamic Pricing

One of the standout features of APE is its ability to handle dynamic pricing. This means that businesses can:

• Forecast Financial Outcomes: Analyze how changes in one area, such as applying discounts or adjusting margins, impact the overall cost or price of a deal. Imagine your CPQ system providing a detailed forecast of product and service demand, broken down by General Ledger (GL) code and specific timeframes. This allows for precise financial planning and resource allocation.
• Adjust Pricing Dynamically: As deals evolve, so can the pricing. This flexibility ensures that your pricing remains competitive and aligned with the actual value delivered. Imagine building your pricing logic once and it being applied universally, with safety coming from predefined thresholds and approval tiers, ensuring no deal surprises or configuration failures.
• Manage Complex Deals: Model phased implementations or varying service levels seamlessly. Imagine every deal with its own deal analysis “Deal Dashboard”, with NPV (Net Present Value) and IRR (Internal Rate of Return) and payback timeline, instantly.

Visualizing Pricing Sophistication with APE

To illustrate how servicePath™’s Advanced Pricing Engine (APE) can transform your pricing strategy, we can draw an analogy to a well-known concept: Maslow’s Hierarchy of Needs. Just as Maslow’s model outlines the progression from basic to advanced human needs, our pricing hierarchy demonstrates how APE enables pricing sophistication step by step.

Hierarchy of Pricing Efficiency (Actualization) with servicePath™’s APE

This pyramid illustrates the progression to pricing actualization that businesses can achieve by leveraging servicePath™’s Advanced Pricing Engine:

1. Accurate Pricing Calculation: Ensuring all costs are accounted for, including hidden and dynamic costs.
2. Dynamic Pricing Adjustments: Flexibly adjust prices in real-time to stay competitive and reflect true value.
3. Financial Forecasting and Planning: Use metrics like Net Present Value (NPV) and Internal Rate of Return (IRR) to evaluate deals and forecast demand.
4. Complex Deal Management: Seamlessly handle phased implementations and varying service levels.
5. Revenue Optimization and Strategic Insights: Empower sales and finance teams with detailed cost analysis, financial dashboards, and strategic decision-making tools.

This hierarchy demonstrates how APE enables your pricing strategy to evolve, ensuring flexibility, accuracy, and alignment with market demands.

In sync with new dynamics and the importance of a toolset where the only constant is change, servicePath™ continues to be at the forefront of helping you achieve pricing actualization. This forward-looking approach ensures that your business remains competitive and agile in an ever-evolving market landscape.

Enhancing Revenue Accuracy

APE’s ability to dynamically adjust costs ensures that hidden costs are accounted for, providing greater accuracy in revenue forecasting. This ties directly into the narrative of driving good revenue—a crucial aspect for any growing business. The customer is hidden from the complexity of the build and delivery, but your operations team is ready, and finance knows what is needed to deliver the business.

Empowering Sales and Finance Teams

APE empowers your sales and finance teams by providing tools to understand the true cost of serving a deal. With APE, they can:

• Evaluate Deals with Precision: Use metrics like Net Present Value (NPV) and Internal Rate of Return (IRR) to assess deal viability, ensuring every deal is financially sound.
• Conduct Detailed Cost of Serve Analysis: Break down the costs at a granular level to understand the true cost of delivering services, enabling better pricing strategies and improved profit margins.
• Forecast Demand and Manage Cash Flow: Aggregate data from multiple quotes to predict future demand and manage inventory effectively. This ensures you have the resources needed to fulfill orders and maintain smooth operations.
• Visualize Financial Impact: Financial dashboards provide a comprehensive view of the deal’s financial impact, allowing teams to see the big picture and make informed decisions.

Real-World Application

Imagine a client wants to migrate services over two years. Traditional pricing models would struggle to accommodate the varying costs and quantities involved. For instance, consider a LinkedIn subscription. It might seem like a simple per-user, per-month cost. However, beneath the surface, there are hundreds, if not thousands, of cost elements and rules that make up that unit cost.

APE allows you to dynamically roll up these costs, ensuring hidden complexities are accounted for, driving good revenue. It provides the ability to handle variations such as scaling up to 1,000 users, each with different service levels, ensuring costs and discounts are managed effectively to protect profit margins.

Sales managers often need to change quantities, locations, or volumes quickly during the sales process. Imagine these changes being reflected immediately, showing the impact on the organization and enabling the sales team to win deals more effectively. The system’s power to handle these constructs ensures that all related costs and licensing rules are properly managed.

APE also supports turning services on and off throughout the customer journey. For example, you might stand up a new service or offer customizations that can be activated or deactivated as needed. This capability is essential for true profitability and viability assessments.

Understanding Cost of Serve

APE allows businesses to perform detailed cost of serve analysis. By breaking down costs at a granular level, APE helps organizations understand the true cost of delivering a service. This is crucial for CFOs and financial teams as it provides insights into the cost structure and profitability of deals, helping distinguish between good and bad deals.

Demand and Cash Flow Forecasting

APE’s ability to aggregate bills of materials (BOMs) from multiple quotes allows CFOs to forecast demand and manage inventory efficiently. For example, if an organization has multiple pending quotes for data centers, each requiring servers, APE can forecast the total number of servers needed. If there are 70 quotes, each requiring 100 servers, the total demand would be 7,000 servers. Understanding this demand, along with the probability of closing these quotes, helps CFOs plan for inventory and manage cash flow requirements, ensuring they have the necessary resources and financing in place to meet future demand.

The Advanced Pricing Engine (APE) by servicePath™ is a game-changer for businesses dealing with complex pricing scenarios. By providing dynamic adjustment capabilities, cost of serve analysis, and demand forecasting, APE ensures that your pricing strategy remains flexible, accurate, and aligned with market demands.

Stay tuned for Part 2 and also an upcoming blog covering the power of Flexi Products;

Ready to Simplify Your Complex Pricing?

Discover how servicePath™’s Advanced Pricing Engine can revolutionize your pricing strategy. Contact us today for a personalized demo and see APE in action. Get in touch with our sales team to learn more about how APE can drive good revenue and streamline your pricing processes.