Episode #0040 - How many pricing analysts do you really need?

In this episode of Pricing College - we ask how many pricing analysts your business really needs.   When launching a pricing transformation or improvement project - obviously, many businesses seek to keep costs low at the beginning - but if you under resource a team - that can have real issues also.   Today we're going to be talking about what is the ideal size for a pricing team. We get asked this question a lot, especially when companies are building their new pricing function. It's a new team, and they're trying to align the new team to strategy. How many people do we need to get the job done? This depends very much on the type of business you are in, what sort of products you sell, etc. Because that drives the margins, the potential for uplift. And also, how much work there is to be done? As a very broad rule of thumb in the industry, we said one pricing analyst per $100 million of addressable revenue. Obviously, if it's quite a strategic mission problem that you're trying to solve. Maybe it's not just one pricing analyst that you need, even if they're only managing 100 million. It could be, in fact, that you need a more strategic pricing manager. So even we'd say, if you've got a business, for instance, which is managing with revenue of 500 million. You could say one strategic pricing manager and then one pricing analyst to support them. Fundamentally, some companies will just be too small to warrant a pricing team or pricing manager. If you're a business doing $1 million, $2 million and $3 million in revenue, it's highly unlikely that a pricing professional will pay dividends for you. The uplift potential from the revenue increase, won't cover their salary to get a good quality person. So, there is a lower threshold of what sort of company can employ a full-time pricing expert, full-time pricing analyst. And you are getting into larger companies where the uplift, where you're adding 1% or 2% to profitability. That's a huge amount of money and it will easily cover the costs of the project. And give a lot more of your value to the business. We see from our consulting engagements that businesses get the most value from a pricing team when they have revenues of over 100 million. Or, they're a business that is growing quickly and they anticipate quite large revenue growth. And that they need someone to manage that, as well as other projects. We have to be very careful here, what is the role of pricing because they're not project managers. They're pricing managers with a very dedicated skill set and dedicated experience in a specific area. So you have to utilise and focus them in the right area to get the maximum value out of the team. Obviously, in most smaller companies growing businesses many people are jack of all trades. They have to focus on a number of areas, and that just makes perfect sense. If you're a one-person operator, you have to do everything. Then as you grow the business you add in people who are experts and take control of more and more segmented areas of the business. Obviously, with pricing good pricer they're not cheap. To get a good pricing professional there's a certain lower threshold you would expect to pay to get somebody competent and capable to do the job. And to deliver the value to you. We have to be honest, there is a certain size of business that is just too small to afford these costs or to warrant them. That does not mean for any minute that you shouldn't focus on pricing. You should learn about pricing. But probably employ a specific and directly employed pricing professional, that's probably outside your budget at the moment. The biggest companies, obviously, and we'll cover this in a future episode. You need someone to drive pricing strategy and also to analyse and dig into the data. Once the revenue gets over certain sizes 100 million, 200 million, 300 million, clearly the workload increases.  As a rule of thumb but it tends to stack up that 100 million is a good threshold a good step to move to an extra assistant or pricing analyst to help. What we also recommend is that at the beginning when you're setting up a new team the size of the team is probably going to be a bit bigger than what it will be over the course of the next two to three years. And the reason being is that everything is new. The price architecture hasn't been established in terms of a formalised disciplined approach. There's probably unlikely to be much logic or in the pricing structure and that's the very reason that you're getting a pricing function. Ironically, however, we find that when people do decide to recruit pricing managers or pricing analysts. They tend to just do it in a very risk-averse way. They just go, oh, we'll get one analyst and we'll just see how it goes. But that isn't enough to solve the huge problem that you're facing. This is an education process in itself. But what can happen is that you don't solve the problem and you think that the pricing team isn't the right solution. But it's because you've under-resourced in the problem and the team. So we highly advise that you think closely about your commercial requirements. Get some expertise to diagnose the problem. Then from there, you can build the right team structure for you and it doesn't have to be big. We're not saying you have to have a big team, it has to be agile, it has to suit your strategy, it has to suit the culture of the business. The team needs to get buy-in from everybody else that can take a little bit more time than people anticipate. A bit more skill than you probably thought at the start. But the team will change and morph over time. Gradually, as you build a new system, new logic, the pricing frameworks and models get slicker. You won't need to recruit as many people. I think my final point I'll make is it's like anything else in life there are economies of scale in nearly all aspects of the business. If you want to open a factory to manufacture any product, you need to build a factory at least one factory, to begin with. You can then scale up until that factory is at full capacity. It's the same to some extent in the pricing profession, you need to start somewhere, and the first investment you make would be one pricing professional as part of your team. There are economies of scale and as the business grows, clearly those become more and more visible. The people you will bring on will be more analysts to help your team leader, but just as the business grows. I suppose the first step is pricing focus integrating that into your company, integrating a value mentality. And that does not require a private professional to do that. It just requires senior executive leadership, and which is also a topic we'll cover in a future episode.