← Flexile Blog

The Ultimate Guide to B2B Sales Process - Products - Chapter 4

Product & Pricing Management

May 24, 2021 10 min read

Products are the foundation on which you build your business - they are the way your business makes money! The issue I see is that not all B2B businesses spend enough time thinking about the design of their products. They often rely on the expertise of their staff to fill any gaps. B2C companies don’t have this luxury and are forced to understand their product/s better.

It’s critical to remember that all business buyers are also consumers - they know what a great product experience looks like, you are not just competing with other B2B organisations but also the product experience they get at home. 

So spend more time thinking about your products!

Great Companies are built on great products.

— Elon Musk

Note - To keep it simple when I write ‘Product’ I mean whatever it is that you charge your customers money for. I am staying away from the “is it a product or service?” debate.

Products Have Two Views

Another key point I always like to touch on is that products can have two views. This is particularly true of the more ethereal products like Internet or Cloud Computing. The customer facing view - what does it look like to the customer?, what do they get? Etc. And the internal view which details how the product is constructed.

A good example is home internet. In Australia it looks like this:

• Customer View - 50/20 Unlimited Internet $79 per month (that’s it, nice and simple!)
• Internal View - 1 x NBN 50/20 TC-4 service (AVC), CVC at POI, backhaul from NBN POI, Internet access, customer modem.

(It's a bit techie, but the point is the internal view is complex and the customer view is simple).

The customer does not care (mostly) about these details, they just want it to work! The business cares deeply about the internal view because if all elements are not considered you are likely to misrepresent the products profitability or abilities.

Product Families

When reviewing or creating your products I like to start with the hierarchical structure I will use to organise these products, often known as Product Families. Product Families should be:

• Easy to understand and navigate
• Agreed across your business (debate as required but get to agreement)
• Allow for future new categories

This process is more art than science so while it’s important to give it thought, don't overcook it and get stuck at this early stage. I like to check out what my competitors do and try and adopt a similar structure if possible. This ensures that they will be well understood across your industry.

What Does the Product look like to the Customer?

Think about Quoting, Orders and Invoices - what does it look like? Too many times I have seen an invoice and thought “what does that line item mean?” When I have checked I have been told, “Oh yeah, that is the product you just ordered...” “Wait, what? Why don't they have the same name??” 

Typically these issues come about because businesses end up with three or more product databases:

1. Product in CRM/front end of business
2. Products in service delivery/back end systems
3. Products in the billing and/or finance system

In an ideal scenario you would have a system that is the single source of truth for product and pricing data that syncs to all your other systems (like Flexile.app). If you don’t have a single source then staying in sync is more challenging but worth the effort. Consistent data across your organisation will payoff big time in the long term.

Product Catalogue

So you have between one and more systems that store your product but where do your staff and in particular your sales team go to look at and read about all the current products they can sell?

Many companies use Product Wikis/Intranets which can be great as long as they are maintained and kept up to date. Spoiler alert! - Typically they are not up to date, or are only once or twice a year when updated. To keep your product catalogue effective it needs to be updated regularly. If this is too challenging consider a system that can publish a product catalogue from all your products currently available for sale (, again - (Flexile.app)).

Don’t forget to use your Product Families here to provide an easy-to-navigate hierarchy. You may also have an alternate navigation structure to make sure everything is easy to find - solution or customer industry related are popular.

So what do you put in your Product Catalogue? The answer to this typically revolves around how many items you sell. For some businesses that sell 100s or 1000s of discreet products they only detail the most commonly sold. If you are predominately a reseller and buy all your products through distributors then it’s reasonable to use the distributor’s catalogue. Of course data challenges may ensue - in my experience distributors have data that can be challenging to use. If you have a reasonably limited product set, add them all.

Pricing

I love pricing and I could easily write pages and pages on the ins and outs of pricing - it’s quite possible that I think about it too much :-)

To keep it simple let’s assume that pricing breaks down into two main categories:

1. Calculated pricing
2. Market based pricing

Calculated pricing is where you derive your price by applying a factor to a buy price or a list price provided by your supplier or based on a calculated internal cost. The factor can be a discount of list or a margin or markup on a buy/cost price.

In my opinion margin is vastly superior to markup because businesses that use margin tend to sell at higher gross profitability (GP) than those using markup. This is a broad generalisation but in my experience it works out as people tend to add a margin or markup that sounds reasonable (say 30%) and if you use margin your sale price will be higher than if you use markup. It’s also important for discounting. If you use markup and then discount by a percentage it’s easy to get into trouble. My favourite ever was a company that marked up their cost by 30% and then discounted by 20% for a long term contract. They told me they made 10% GP (nope, math fail).

Markup/Margin Example

If your cost price is $100 and you use margin, your sell price would be $143 ($100 / .7).
If you use markup it would be $130 ($100 x 1.3).

If you are using calculated pricing the key is ensuring consistency to ensure you correctly calculate all your pricing. Be alert for errors and ensure robust change management and checking procedures.

Market based pricing is an entirely different beast and one that too many overlook. To me when you are pricing a product the first thing you need to consider is where the market is at for competitive products and then consider your positioning. Are you a market leader with a premium product (highest market price) or are you a budget/value provider (lower end)? What features do you have versus the competition etc?

I had a very interesting discussion with an accountant from a Big 4 accounting firm when I was at Vocus. He had produced an incredibly complex model to show that we were selling Wholesale Internet (IP Transit) too cheaply and suggested we should raise prices to improve our margins. (Side note - if you have tried to build a model for wholesale internet when you have over 50 supplier or peering ingress/egress points to your network, I feel your pain).

I pointed out to him that if we raised prices we would not sell anything as it was a very competitive market and as we had already spent the money on the network (which formed the basis of his model)  we were better off selling our spare capacity than having higher prices and higher margins on zero sales…

The key takeaway for pricing is that you must know your market positioning and your competitors and start there. Yes it's critical to know how much GP a product makes, but first start from what you can sell it for. This helps rule some products out straight away or forces you to look at innovative ways to drive costs down so you can compete.

Hopefully you found this brief touch into Product and Pricing interesting, I am more than happy to chat with anyone who wants to dive deeper into anything I skimmed over.

In the next chapter we will get into quoting, how to do it well and what to avoid at all costs!

Matt Hollis
Co-founder & CEO @ Opvia

Other Chapters in this series

Chapter 1 - Easy to Sell, Easy to Buy. Chapter 2 - Business Benefits of a Great Sales Process. Chapter 3 - What is CRM? What is CPQ? What do I need???.