Category B · Pricing & Cost · Scenario 3
Price Pressure
You're being pushed to lower prices or can't pass on increases. A small discount often needs a surprisingly large increase in sales to break even, because it comes straight off your margin. Understanding contribution — what each sale leaves after variable costs — is the key.
Trigger
Competitors reduce prices or customers resist increases.
First move
Before you discount, calculate how much extra volume you'd need to sell to make the same contribution.
Immediate first response
Run the numbers on any proposed discount: how many extra units must be sold just to stand still?
First 24 hours
- Calculate your contribution per unit on the main products affected
- Work out the volume increase needed to offset any proposed discount
- Pause new discretionary discounts until you have the numbers
Next 7 days
- Review discounting authority and approval rules
- Segment customers by price sensitivity and profitability
- Identify where your value (service, quality, speed) justifies your price
- Consider alternatives to discounting — bundles, terms, volume tiers
- Gather real competitor price information rather than anecdotes
Next 30 days
- Set a clear pricing policy with margin floors
- Train your sales team to sell value and to understand contribution
- Look for cost reductions that protect margin
- Track realised price and margin monthly
- Be willing to walk away from unprofitable work
Typical causes
- New or aggressive competitors
- Customers under their own cost pressure
- Your product being seen as a commodity
- Procurement-led tender processes
- Online price comparison making pricing transparent
Early warning signs
- Quotes lost on price more often
- Sales team asking for more discount authority
- Customers pushing back on price increases
- Average selling price drifting down
- Gross margin percentage falling even when volumes hold
Trigger indicators
- Average realised price more than 3–5% below list for two periods
- Win rate falls meaningfully where price is cited
- Gross margin percentage down by more than 2 points
Financial implications
- Discounts reduce contribution directly, unit for unit
- Small price cuts can require large volume increases to recover
- If revised contribution is zero or negative, no volume can recover it
- Lower margins reduce cash generation and loan servicing capacity
Questions management should ask
- What is our contribution per unit before and after the discount?
- How many more units would we actually need to sell?
- Is that extra volume realistic and can we supply it?
- Are we losing on price, or on something else that customers call 'price'?
- Which customers are profitable at current prices?
- What happens if competitors cut further?
Common mistakes
- Discounting without calculating the break-even volume
- Giving the same discount to everyone
- Letting sales staff set price without margin visibility
- Assuming lost volume would have been profitable anyway