No matter your business or your industry, we all know pricing is critical. But it can be complicated too. Knowing how to value your products or services is just the start. One of the most challenging parts of pricing is that it is fluid, and changing prices, for any reason, can be hard. All these factors and more came into play with a new assignment I had early in my career.

The company I was working for had just completed its first acquisition of a smaller business that was intended to help expand product offerings, geographic presence, and customer base. The acquired company was primarily controlled and managed by its founding owner and the business had limited performance metrics, documented processes, reporting, or transparency. A few months into the transition, it was not going well, and I was asked to relocate immediately–as in within one week–to become the financial controller and help get things turned around.

It quickly became apparent that the lack of reporting and metrics caused a hurdle in understanding the business and prioritizing action plans. There were significant opportunities to improve manufacturing efficiency, on-time production/shipments, quality, and price controls. The management team had a full court press on all fronts to stop the bleeding, and it was clear we needed to dig deep into the processes and behaviors to effect a major overhaul.

Although the problems touched all areas of the business, the one area I was specifically focused on was product pricing. Ultimately, we had pricing problems that fell into two buckets: 1) setting prices appropriately and 2) creating processes and systems that would ensure adherence and accurate invoicing.

Due to the lack of reporting and metrics mentioned earlier, we were unable to answer many fundamental questions. At a minimum, to operate effectively, you really need to understand your pricing and product margins. Knowing the margin by product is essential—it guides decisions on which products to prioritize, which to improve, and which to potentially discontinue.

As part of the pricing action plans, we set out to review the overall pricing philosophy with a competitive analysis. Over the years, pricing on specific units or attributes had been adjusted for various reasons and didn’t always make sense based on product size or cost. I decided to develop and implement formula-based pricing that established linear pricing aligned with unit size. Of course, compared to current pricing some units were going to be more, and some were going to be less, but it would make more logical sense on price sheets and customer quotes. Additionally, the plan was to address relational pricing across the full product line up so that product mix profitability wouldn’t be as much of a concern. None of this was rocket science, but it was going to require significant work and analysis, along with time, to communicate internally and externally…and time was of the essence.

In terms of processes, we identified that a root problem was that the sales team had the ability to discount orders but was not consistently communicating their discounts back to invoicing. Therefore, invoicing was going out to customers at standard pricing, and the subsequent discrepancies led to confused and annoyed customers, delinquent payments, and post-invoicing adjustments that made the poor financial results even worse.

Poor operational performance led to deeper discounting by the sales team, who sought to appease unhappy customers. Again, this was not systematically communicated to invoicing, and so the spiral continued. It was an absolute mess, and we were at risk of cutting our losses and shutting the acquisition down if we couldn’t get things turned around quickly.

An obvious next step was to establish appropriate pricing controls and set the right expectations with the sales team. We also initiated candid conversations with existing customers on pricing requirements with the commitment to improving performance. Some customers opted out at this point, which was disappointing of course. But ultimately, as we were experiencing existential risk, it was the right decision to support the company’s long-term profit needs and goals.

To further complicate the situation, while I was directly leading this effort, I was heavily relying on the pricing analyst who had been with the company for many years. He knew the current system, the history of pricing with customers, and all the little pricing nuances. It turned out, however, that he was contributing to the problem; he had no documentation and was not very motivated to drive change or produce excellence. It was an early lesson on the importance of having the right people in the rights seats on the bus, and being willing to make changes when necessary…no matter their level of tribal knowledge. We needed to make a change, and we did, and that was a big step in the right direction.

The pricing adjustments were implemented, which allowed us to better position the business for profitable growth going forward. The full team effectively worked on the other issues to dramatically improve performance over the next year. Operationally, we started executing at a high level for our customers and eventually earned opportunities to grow the business. The company continued to improve and became the most profitable division which led to expansion in multiple locations throughout the country and the division grew to more than six times its original size.

My biggest professional lesson was that you’ve got to be courageous as a leader, and although change can be hard, it’s also inevitable. It’s important not to hesitate or shy away when it becomes clear that things must change.

Years after this experience, I joined my current company, LDJ Manufacturing, which is based in Iowa and known for producing premium mobile fuel and service equipment under the Thunder Creek Equipment brand name. I started in March 2020 – just as the COVID-19 pandemic began upending every assumption about the economy. Though this business is very different from the one I described above, the pricing lessons applied just the same.

As the world reacted to the pandemic, we were experiencing supply chain issues and significant material inflation. Our largest material component, steel, was tripling in price and suppliers began putting manufacturers like LDJ on allocation. Lead times stretched and materials were hard to get, and yet, our sales team was buried in orders. We were one of the few equipment companies that could complete orders, so record bookings were flooding in.

At first, because we were getting so many orders, it felt like we were winning. But as input costs soared, we became increasingly concerned with margins given the growing backlog. Having experienced what can happen when pricing issues go unaddressed, I knew that the faster we took action, the better off we’d be. We made a tough call: a midstream price increase would be applied to already-placed orders, with customers given the option to cancel any existing order. There was lots of internal debate; we had never done this, and the sales team was worried. But we moved forward. Customers were notified with an explanation letter, pricing was updated, and not a single order was cancelled. As worrisome as it had felt, it was the right thing to do to address the real pandemic inflation pressures.

Making this difficult decision quickly helped preserve our margins and reinforced the previous lesson: sometimes, pricing discipline means leading, not just reacting. To be a strong and effective leader, you’ve got to be willing to be courageous, even when you don’t know exactly how it’s going to turn out. You’ve got to listen to your gut and do what you know needs to happen.

Since then, LDJ has continued to be intentional with its pricing strategy and programs. Our approach today is pragmatic but firm. We keep a close eye on margins and competitive pricing, and when needed, we adjust value propositions instead of discounting. Sometimes, we add features or attributes rather than cutting prices. If you’re building a premium product, you’ve got to garner a premium price, and ensure your team is delivering on its promises and being paid for the value they are bringing.

As an Evergreen® company committed to Paced Growth, we understand that it’s about building the right foundation that will serve us well not just tomorrow, but far into the future. You must be willing to make the necessary adjustments, even if they slow or reverse growth temporarily, so that you will be a healthy and growing business for 100 years or more.