Manual Pricing
By DealHub Experts 
Reviewed By Eyal Orgil Published August 8, 2024
Table of Contents
What is Manual Pricing?
Manual pricing involves setting and adjusting prices without automated systems. This method involves human intervention to determine the price of products or services based on factors such as market conditions, competitor prices, costs, and company pricing strategies. Manual pricing can be labor-intensive and prone to errors but may provide greater flexibility and control in certain situations.
Synonyms
- Manual Price Setting
- Manual Rate Adjustment
How Manual Pricing Works
Manual pricing is a detailed process that relies on human input to determine product or service prices accurately. Here’s a detailed breakdown of the process, illustrated with a hypothetical SaaS company, SoftWave Dynamics:
Data Collection
The initial phase of manual pricing involves gathering relevant data. This data includes production costs, competitor prices, market demand, and historical sales figures. Gathering this data offers a thorough understanding of the market and assists in accurate pricing decisions for products or services.
Example: SoftWave Dynamics collects data from various sources such as developer salaries, server costs, competitor subscription models, and sales reports from their customer relationship management (CRM) system.
Analysis
Once the data is collected, it’s analyzed. This step helps understand market trends, customer behavior, and cost structures, which assists in setting competitive and profitable prices. Analyzing this data helps identify which features are most valued by customers and how price changes affect customer acquisition and retention.
Example: SoftWave Dynamics analyzes sales data to identify patterns in customer purchasing behavior, such as which subscription plans are most popular and how often customers upgrade or downgrade their plans. They also examine competitor pricing to ensure their prices remain competitive while maintaining profitability.
Price Setting
The next step is setting the price based on the analysis. This involves calculating the desired profit margin, considering market conditions, and making strategic decisions. A business might decide to price its premium product higher to reflect its advanced features while offering a lower-priced basic option to attract price-sensitive customers.
Scenario: SoftWave Dynamics sets the price of its premium subscription plan slightly higher than its closest competitor to position it as a high-value offering. They also introduce a mid-tier plan to capture customers willing to pay more than the basic price but do not need all the premium features.
Implementation
After setting the prices, the next step is updating the prices across various platforms. This includes the sales system, marketing materials, and online platforms to ensure that customers are well-informed. This means updating the website, sales brochures, and internal billing system to reflect the new prices.
Example: SoftWave Dynamics updates its website with the new subscription prices, verifying that all the pricing tiers are clearly displayed. They also update their in-app purchase options and notify existing customers about the new pricing structure through email and in-app messages.
Monitoring and Adjustment
The final step involves continuously monitoring sales performance and market conditions. This helps in making necessary price adjustments to remain competitive and profitable. Regularly reviewing the pricing strategy helps respond to market changes, customer feedback, and competitor actions.
Process: SoftWave Dynamics regularly reviews sales data and market trends to adjust prices as needed. For example, if a competitor introduces a new feature, SoftWave might adjust its pricing or add value to its existing plans to stay competitive. It also tracks customer feedback to identify any issues with the current pricing structure.
Advantages of Manual Pricing
Manual pricing offers flexibility, control, and personalization for businesses. Let’s continue with our example of SoftWave Dynamics to illustrate:
Flexibility
Manual pricing allows for quick adjustments in response to market changes, competitor actions, or inventory levels. This flexibility can be a game changer in fast markets where rapid responses are necessary to stay competitive.
Example: During a flash sale, SoftWave Dynamics can quickly reduce prices on certain subscription plans to drive sales and clear inventory of slower-moving products. This immediate adjustment helps capitalize on short-term opportunities and react to competitor pricing moves.
Control
Another significant advantage is greater control over pricing decisions. Manual pricing allows businesses to implement complex pricing strategies tailored to their specific needs. This level of control is particularly beneficial for businesses with unique market positions or specialized product offerings.
Example: A luxury brand like SoftWave Dynamics uses manual pricing to maintain its premium image by carefully controlling the prices of its high-end software solutions. By avoiding automatic price adjustments, the company ensures that its products remain exclusive and desirable, reinforcing its brand positioning.
Personalization
Manual pricing offers the ability to set customer-specific pricing based on relationships, purchase history, and negotiation outcomes. This personalized approach enhances customer loyalty and satisfaction by providing tailored pricing that reflects the value of the relationship with each customer.
Scenario: SoftWave Dynamics offers personalized pricing to its long-term B2B clients based on their purchasing volume and history. By negotiating custom pricing agreements, the company strengthens its client relationships and encourages repeat business, leading to increased customer loyalty and satisfaction.
Disadvantages of Manual Pricing
Manual pricing also presents several disadvantages that can affect efficiency and profitability.
Time-Consuming
Manual pricing requires significant time and effort to collect data, analyze it, and set prices. This can be inefficient, especially for large product ranges. The manual process involves numerous steps that can slow down the pricing adjustments necessary for dynamic industries and lead to a pricing dilemma.
Example: A large retail chain spends weeks collecting and analyzing data for its vast inventory of products. The time-intensive nature of manual pricing creates a challenge for pricing teams and delays the implementation of new prices, which can lead to missed opportunities and reduced sales.
Prone to Errors
Human errors in data entry, calculation, or judgment can lead to incorrect pricing, resulting in lost revenue or reduced profitability. Manual processes are susceptible to mistakes that automated systems can avoid, affecting the accuracy of price setting.
Example: An incorrect price entry in a spreadsheet at an electronics store leads to a popular gadget being sold at a loss for several weeks before the error is detected. This oversight results in significant financial loss and requires time-consuming corrections.
Lack of Real-Time Updates
The inability to respond instantly to market changes or competitor price adjustments can result in missed opportunities and reduced competitiveness. Manual pricing processes are often too slow to keep up with rapid market changes, putting businesses at a disadvantage.
Scenario: A small online retailer misses out on a pricing opportunity because manual processes cannot keep up with real-time competitor price changes. This delay means losing potential customers to competitors who have already adjusted their prices, resulting in reduced market share.
Comparing Manual Pricing to Automated Pricing
To choose what’s best for your business compare the characteristics of manual and automated pricing. Here is a comparison of key aspects of both pricing methods:
| Aspect | Manual Pricing | Automated Pricing |
|---|---|---|
| Flexibility | High flexibility for custom strategies | Moderate flexibility, best for standardized adjustments |
| Control | Complete control over pricing decisions | Control through predefined algorithms |
| Personalization | High personalization for customer-specific prices | Relies on data patterns for personalization |
| Time Efficiency | Time-consuming, especially for large ranges | Highly efficient, handles large volumes quickly |
| Error Proneness | Susceptible to human errors | Reduced errors due to automation |
| Real-Time Adjustments | Limited ability for real-time updates | Instant adjustments based on market data |
| Cost of Implementation | Lower initial costs, higher ongoing labor costs | Higher initial setup costs, lower ongoing costs |
| Data Handling | Manual data collection and analysis | Automated data collection and analysis |
| Scalability | Challenging to scale for large businesses | Easily scalable to accommodate growth |
| Response to Market Changes | Slower response times | Fast response times |
Common Manual Pricing Techniques
Manual pricing can be implemented using various techniques, each with its own approach and benefits. Here are some common methods used by businesses:
Cost-Plus Pricing
Adding a fixed percentage or amount to a product’s cost determines its selling price. This method ensures a consistent profit margin, making it straightforward and reliable. Businesses calculate the total cost of production, including materials, labor, and overhead, then add a markup percentage to ensure profitability. This technique is simple to implement and provides clear pricing structures, making it popular among manufacturers and retailers.
Competitive Pricing
Setting prices based on competitor prices. This method helps businesses remain competitive in the market by aligning their prices with those of similar products or services offered by competitors. Companies conduct market research to monitor competitor pricing strategies and adjust their own prices to either match or undercut competitors. This approach is particularly effective in highly competitive markets where price is a key factor in consumer decision-making.
Value-Based Pricing
Setting prices based on the perceived value to the customer rather than the cost. This method can lead to higher profit margins by focusing on the unique benefits and features that customers value most. Businesses need to understand their target market and the specific needs and preferences of their customers. Companies can justify premium pricing by highlighting the distinct advantages and superior quality of their products or services. This strategy is commonly used in industries with significant innovation and brand differentiation.
Dynamic Pricing
Dynamic pricing adjusts prices based on real-time supply and demand conditions. While typically associated with automated systems, dynamic pricing can also be implemented manually, allowing businesses to respond to market fluctuations and optimize revenue. Companies monitor factors such as inventory levels, competitor actions, and market demand to make timely price adjustments. This approach is beneficial in markets where demand varies significantly, such as hospitality, travel, and entertainment. Businesses can maximize their revenue and improve inventory management by leveraging dynamic pricing.
Best Practices for Manual Pricing
Implementing best practices in manual pricing can help businesses optimize their pricing strategies and maintain competitiveness. Here are some key practices to consider:
Regular Reviews
Regular reviews of pricing strategies and market conditions are essential for ensuring that prices remain competitive and aligned with business goals. Regular reviews allow businesses to adapt to changing market dynamics, competitor actions, and internal performance metrics. This practice helps in identifying outdated pricing processes and areas where pricing adjustments can drive better profitability or market positioning.
Our tip: Schedule quarterly pricing reviews to assess market trends and adjust prices accordingly. Create a structured process for these reviews, involving key stakeholders from various departments to provide a comprehensive perspective on market and performance changes.
Use of Tools
Utilizing pricing spreadsheets and other tools can help organize data, perform calculations, and systematically track pricing changes. These tools can streamline the pricing process, reduce the likelihood of errors, and save time. Advanced functions in spreadsheets, such as pivot tables and macros, can automate repetitive tasks and enhance accuracy.
Our tip: Invest time in setting up advanced spreadsheet functions to automate parts of the pricing process. Regularly update these tools to reflect the latest market data and internal cost changes, ensuring that the pricing strategy is always based on current information.
Cross-Department Collaboration
Effective communication and collaboration between sales, marketing, and finance teams are crucial for aligning pricing strategies with overall business objectives. Each department provides unique insights that can inform better pricing decisions. Collaboration ensures that pricing strategies are comprehensive and consider all aspects of the business.
Our tip: Hold regular meetings between departments to discuss pricing strategies and market feedback. Encourage open communication and the sharing of data and insights to foster a collaborative environment where pricing decisions are well-informed and strategic.
Training and Development
Investing in training for employees involved in pricing enhances their analytical skills and understanding of market dynamics. Well-trained sales staff can make more informed pricing decisions and adapt quickly to market changes. Training programs can cover various topics, from basic pricing principles to advanced market analysis techniques.
Our tip: Develop a comprehensive training program for pricing analysts, including workshops and online courses. Regularly update training materials to reflect the latest industry trends and pricing strategies, ensuring that your team is always equipped with the most current knowledge and skills.
People Also Ask
How is CPQ an alternative to manual pricing?
CPQ (Configure Price Quote) software offers an automated alternative to manual pricing with several advantages:
– Streamlined workflows: CPQ automates pricing rules, discounts, and promotions. Sales reps can configure quotes quickly based on pre-defined parameters.
– Accuracy and consistency: CPQ ensures everyone uses the latest pricing information, reducing errors and inconsistencies in quotes.
– Complex pricing structures: CPQ handles complex pricing models like tiered pricing, volume discounts, and partner-specific deals, which can be cumbersome with manual methods.
– Improved efficiency: Automating calculations frees up sales reps to focus on building customer relationships and closing deals.
– Data-driven insights: Some CPQ systems use historical data to suggest pricing strategies, helping businesses optimize their pricing approach.
CPQ transforms pricing by offering a more agile, efficient, accurate, and consistent way to handle pricing compared to manual methods.
What tools can be used for manual pricing?
Price spreadsheets and other data management tools are commonly used for manual pricing. These tools help systematically organize data, perform calculations, and track pricing updates. Advanced spreadsheet functions and complex pricing logic, such as pivot tables and macros, can automate repetitive tasks and enhance accuracy.
How often should pricing strategies be reviewed?
Pricing strategies should be reviewed regularly, ideally every quarter. This allows businesses to adapt to changing market conditions, competitor actions, and internal performance metrics, ensuring that pricing remains competitive and profitable.