Executive dashboards are valuable coordination tools. They help pricing teams communicate facts and identify areas deserving executive attention. This is demonstrably clear. Yet, what facts specifically should be on a pricing dashboard? What are the issues that pricing should bring to the attention of their CEOs?
To address this question, I asked ten different pricing practitioners in a variety of industries, all of whom were at the director level or above, what they put on their CEO pricing dashboards. I also reflected on the tools and techniques utilized in pricing, the responsibilities of pricing within organizations, and the cross-functional nature of pricing. What follows is a resulting list of items to consider when developing your pricing dashboard.
Broad Business Metrics
There are several broad business metrics that are always at the top of mind for any executive. Pricing impacts each of these key metrics and, as such, they belong on a pricing dashboard.
These broad business metrics include:
- Market Share
- Profit or Revenue Bridge
Generally, these metrics are reported along with changes in the metrics over time. Many pricing executives report adding drill down capabilities to their dashboard, allowing peer executives to drill down by product category or product, by region or country, or by business unit. Moreover, the metrics themselves vary in reporting style from being simply numbers, a value indexed to some reference point, or a time-series plot of data.
Most illustrative is the sixth item in our list – the profit revenue bridge. The profit bridge connects the profits earned in one period to the profits earned in a prior comparable period. One variation of this profit bridge delineates the changes in profits as being attributable to either volume, price, variable costs, or fixed cost changes.
The profit bridge presents challenges in two key dimensions: representation and interpretation.
The representation challenge of the bridge is one of approach and detail. Some variants examine changes in profits while others examine changes in revenue. Some variants include a price and volume cross term resulting from the choice in how they conducted their mathematics. Other variants are more detailed in including currency fluctuations or even the impacts of lost and new business.
The interpretation challenges of the profit bridge have been described previously. At a high level, the challenge is one of distinguishing the measurement from causes or actions. Using the chart above as an example, we observe that changes in sales volume, variable costs, and fixed costs each contributed to a decrease in profits, while changes in price contributed to an increase in profits. This is a factual statement resulting from measurement and, as a fact, it is highly valuable. Yet interpreting this factual statement into causes and actions requires more insight. For instance, one cannot tell from this or any other profit bridge alone if the volume decline was due to a change in price, product mix, demand, or business cycle any more than one can tell if the variable costs increase was driven by supplier costs, product mix changes, or some other factor. One can only tell from the profit bridge how changes in broad business metrics impacted profits, not why they changed nor what actions should be taken.
Even though the profit bridge fails to clarify antecedents and consequences, it is a strong element for inclusion in an executive dashboard.
Why? To use an analogy, the profit bridge measurement, just as figures on profits, revenues, margins, market shares, and prices, is like a temperature measurement. To say that something is 18° C is not the same as stating why it is that temperature or that the temperature should be higher or lower. It is simply stating a concrete fact about the nature of that thing. In the same manner, the profit bridge and other measurements of broad business metrics do not state whether any of these measurements should be higher or lower in a given period nor what actions an executive should take. Rather, the profit bridge delivers a concrete fact for executives to observe regarding the nature and status of their business.
Pricing impacts customer relationships and, as such, customer metrics are often placed on pricing dashboards.
The customer metrics reported vary greatly by business. One key difference between reporting metrics is the customer concentration. For highly concentrated customer bases, pricing dashboards often include metrics regarding the performance of the top customers. For example, in consumer goods production, key customer metrics reflect the importance of major retail outlets on sales. For highly dispersed customer bases, pricing dashboards often include metrics regarding new customer acquisitions and lost customers. For example, in industries like mobile telephony, SaaS, and insurance, customer churn metrics reflect the importance of low customer churn.
Businesses sometimes include other metrics such as transaction sizes (histogram) and win-loss ratios with rationale (rationales tend to be subjective, unfortunately).
Pricing Specific Metrics
While all of the metrics mentioned above could also be found on the dashboards of other functional areas, such as sales, marketing, or finance, other metrics on a pricing dashboard are specific to pricing.
Pricing metrics on executive dashboards reflect the pricing initiatives in progress or to be initiated. Potential pricing initiatives vary. Which should be included and with what depth will be dependent on the pricing maturity of the company.
Specific pricing projects may relate to price setting, price variance (commercial policy), pricing and sales incentive alignment, price governance and price training efforts. These are measured by the number of events, expected impact per event, or some other type of pricing initiative scorecard.
For price setting efforts, measurements on profit improvement created through the price setting research are useful. For instance, comparing (1) the anticipated offering profitability prior to the project given the initial pricing plan, and (2) the anticipated offering profitability after the project with the initial pricing plan, against (3) the anticipated offering profitability after the project with the new pricing plan will show the impact of the price setting project on creating both realistic market volume expectations and realistic price expectations.
Furthermore, every price setting effort can include a price positioning map for that specific offering.
For price benchmarking, measurements include customer preference research, competitive price indexes, and other issues.
For price variance planning efforts, measures include the past and forecasted price waterfall, past and forecasted unplanned (tactical) price variance, and number and value of customers receiving a price increase or decrease.
For price variance execution efforts, measures include the current price waterfall, unplanned (tactical) price variance, number and value of price exceptions, and percent price realization.
For pricing and sales incentive alignment initiatives, measures include the number of salespeople with a given incentive plan, the attainment of their incentive plan, the reduction in unplanned (tactical) price variance and exceptions, and the change in pocket price resulting from the initiative.
For price governance and training efforts, measures include the number of business units or executives impacted, the revenue impacted, and a scorecard of the outcomes of those improvement efforts.
Other, more qualitative metrics are also used. Pricing maturity and culture metrics are qualitative in nature, yet still useful. Similarly, success stories are embedded in storytelling and therefore naturally qualitative. Yet antidotes are necessary for creating a culture of good pricing hygiene. (People remember stories better than numbers.)
Then, there are the scream tests: how many members of the sales team are complaining about prices and how loudly are they complaining? How many of our customers are complaining about prices and how loudly are they complaining? Some pricing executives report these metrics as well. (After watching Starbucks repeatedly raise prices and customers repeatedly screaming about the higher prices, and then quarter after quarter Starbucks repeatedly reports strong same-store traffic and profit numbers, I give such metrics little merit.)
Pricing Potential Metric
The items above are good to have on your pricing dashboard, but what is missing is a roll-up metric of the value of the pricing team itself. Consider how valuable it would be for the CEO to learn (1) how much potential improvement there could be in profits if pricing was fully under control and (2) the cost and timeline to achieve that pricing maturity. Pricing departments should not just track accomplishments and expenditures; they should also clarify the roadmap for future improvements, the value of undertaking those improvements, and the cost to undertake those improvements. Even though this Pricing Potential Metric may require qualitative assumptions, it is a highly valuable metric for executive decision making. By providing that clarity, lead pricing executives enable CEOs to prioritize their initiatives, and more specifically, prioritize pricing more appropriately.
Your Pricing Dashboard
This is a long list of potential items for a pricing dashboard. Which should be included, for whom, and with what detail is a design question that must balance the needs of the executive audience against the desires of the lead pricing executive. Outside of broad business metrics, pricing dashboards are customized to suit the needs of the business. For a pricing professional seeking to drive business performance through pricing, I recommend selecting a few key metrics of the initiatives you currently have underway and a few leading metrics of the initiatives you would like to undertake.
For more support in creating your Pricing Dashboard, contact Wiglaf Pricing.