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Steve Franklin: Pricing and quotation is key for quarries

Eltirus

Maintaining an effective handle on the sales process, quotation and pricing is critical to any quarry business. Steve Franklin, founder of Eltirus, looks at some new developments that could make a tangible difference to your bottom line.

Any size company can be effective in sales. However, very small sales teams are generally more effective than larger teams because the future revenue of the company directly depends on the actions of a few people.

In smaller teams, the tendency is for everyone to work together in the same location, and they have the advantage of understanding the end-to-end sales processes (for example from quote to cash) and being involved in that process on a daily basis.

Spreadsheets are often the preferred tool for these type of smaller businesses as they are cheap, flexible and can support almost any business process like price or cost analysis, forecasting, sales pipeline review and even producing quotes. The limitation however is that as more and more people are involved, the opportunities for errors and omissions grow and they become increasingly more unwieldy.

Larger teams require more advanced management, more rapid information sharing and sales process standardization across the team members. Cloud-based applications are perfect for the instant processing of large amounts of data and their ability to share it across a geographically dispersed team and with other connected applications. It is simply much quicker, more consistent, more secure, and more reliable because it drives the process standard for all users.

While many larger companies have a Customer Relationship Management (CRM) system, standard CRM packages are generally not industry specific and can be difficult to adapt to the construction materials industry. Configure, Price, Quote (CPQ) solutions such as Price Bee are specifically designed for our industry and focus on ensuring that the functionality that is important to industry sales professionals us easy to use and what’s not relevant is left out.

Figure 1 – Adherence to pricing strategy example. Image: Eltirus

Sales strategy

Whether a small or large team, it is vital that the responsible salespeople are aware of the sales strategy and understand how their day-to-day quoting contribute to that overall picture.

With every quote they make they should know if it is good or bad for pricing and more importantly, consistent. Once this level of understanding is established, a more analytical approach to pricing can be taken, informed by strategy, and driven by information from the market.

Figure 2 – Discount group analysis. Image: Eltirus

Pricing methodologies

There are a range of different methodologies that can be used to unlock additional profitability, including pricing self-assessment and diagnostic and customer attractiveness matrix.

Which one is applicable is dependent on the level of pricing maturity of the company. For aggregates, there are generally two methodologies that gel with almost everyone.

For smaller clients, pricing is a good way to go forward. When we talk about a small client (depending on the market), we are generally talking about a client buying some 500 – 5,000 tons per year. Work needs to be done to get a sense of what the different size groups of customers the business has as a first step. Sales teams easily buy into the concept of price differentiators between larger and smaller clients as well as the need to have more discipline around price setting and quoting.

Those are small and easy wins from revenue increase perspective, but they serve as a basis of further pricing transformation.

Customer attractiveness matrix is a customer benchmark approach which is co-developed with the client. The Price Bee team design six to nine sales and pricing indicators and use a scoring methodology to calculate how good each customer is for the business.

Compared to the first approach, this one is harder to build (and to explain) but can be quite eye opening for key account managers.

Once you have a good pricing methodology in place, effective quotation is vital.

Quoting tools

From a sales process perspective, quotation plays a critical role. A quote is a key touch point with the customer and provides a written proof of price, validity, and relevant conditions.

It’s also a highly time-consuming part of salespeople’s job. According to the Price Bee 2021 study, “Salespeople spend up to 60 per cent of their time on quotation and order fulfillment activities.”

A quote tends to reflect the company’s order-fulfillment process because sales can only quote what can be processed by their point-of-sales, dispatch and (if relevant) ERP systems. This is probably a reason many smaller players choose to quote using paper and/or emailing Microsoft Word or Excel documents. They feel in control and get so used to the simplicity and ad-hoc adjustments this approach enables that transitioning to another approach is very difficult without a major change of viewpoint, systems, and methodology.

Some companies attempt to build an in-house quoting system but even with the best intentions, they often end up with an IT roadmap that prioritises the weighbridge/dispatch system remaining unchanged, resulting in a system more aligned with order fulfillment processes and missing key elements like haulage cost calculation, quote life cycle management or, even worse, completely ignoring critical customer information that is not relevant to order taking or invoicing.

The above-mentioned examples are at two ends of the spectrum. The first, though highly flexible is generally dependent on the people who created it and has no long-term future; the second will survive much longer, but is inflexible, makes data analysis difficult and ultimately, will not appeal to a younger generation of salespeople.

This said, there are some smart businesses that just get quoting right, either as a result of forward-looking sales management, robust processes, software and offline models or more sustainably, through putting in place a dedicated, purpose built, end-to-end CPQ system.

The role quotation plays in pricing

From a broader pricing strategy perspective quoting could appear less critical because not all sales are quoted, and some smaller producers actually don’t quote at all. However, once a company reaches greater sales volumes and pricing maturity, the need for consistent pricing is vital to meeting strategic targets and monitor performance.

For example, if target prices are defined using margin objectives, an effective quoting tool would allow for a real time analysis of all quotes and a clear view of how each salesperson, customer, site, or product are doing with regards to the desired target price and any quoted target price variance.

Although the interpretation of quoted prices can be highly contextual, it is still a great way to gather real time market feedback in relation to the company’s pricing strategy. While many sales professionals rely on won and lost reports to assess performance, this is generally a lagging indicator and tells us very little about the effectiveness of the pricing strategy. Having a good understanding of sales teams’ pricing behaviour provides real-time feedback regarding the pricing strategy and an indication of market position.

Quotes can also be used to help improve pricing strategy by capturing information about discounts given to customers. One of the challenges of pricing is to correctly determine what the acceptable discounts levels should be, generally by volume grouping. Analysing the discount ranges of quoted products is a great way to identify fair discount levels for customer groups all the while getting a clear picture whether a desired discount policy is working or not.

To effectively put in place price rises and manage margin, a company needs more than just a vision or a presentation. It needs the data to about the market and its position in it to make informed decisions about pricing, discount levels and approach. An effective, industry specific CPQ system ensures that management have the data they need for analysis and correction and the sales team have the tools to simplify their job of quoting and closing work.

It is truly impressive how much sales teams can achieve with a good pricing strategy, effective tools, and good implementation. When you put in place simple company-wide methodologies like cost plus pricing or consistent discounting based on customer size, the results are almost immediate.

The key is to realise that it is not the just the methodology that delivers the revenue increase, but the team. So, in choosing methodologies and software, it is important not to over complicate things and to provide the training and support a sales team needs to transition to next level pricing.

Eltirus is a Price Bee partner. For more information, email steve.franklin@eltirus.com

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