Business Outsourcing Pricing Strategy
From cleaning to stationery, we support outsourced product and service providers in pricing for value, not just volume, using clear logic, governance, and deal discipline.
Industry Insights
Procurement managers often end up focused on lower invoice prices but end up driving more operating costs into the company’s P&L. This occurs because low invoice prices offered by a competitor often come with other hidden costs.
Business outsourcing covers many different product categories that are often considered indirect or overhead business costs. Categories include stationary, cleaning products, and facilities products such as laundry, bathroom, and catering products and services.
Business outsourcing has undergone many changes over the last 10 years. Purchases of outsourced services have been centralised under a procurement function with dedicated category buyers who are able to negotiate aggressively with suppliers.
Procurement teams often compare invoice prices paid TY vs LY to identify savings and demonstrate their function’s value to their employers. However, invoice value comparisons alone present a limited and incomplete picture of total value. Poor quality products, longer lead times requiring the customer to hold greater levels of inventory, a lack of technical expertise, and a lack of support to solve problems or provide product or service customisation all represent additional risk and cost to a business. These complications are often not factored into the invoice price.
Business Outsourcing:
Industry Insight
In essence, lower prices mean greater risk. Lower prices often result in an additional set of hidden costs not measured by procurement and for which they are not held accountable.
Outsourced services and products have usually been categorised as either high or low supply chain risk importance, and high or low impact to profitability. The implication for outsourcing companies is that they may have their products or services pushed into a commodity status with the result being margin contraction.
Companies that rely on product and feature selling end up in the low impact quadrant, are considered non-critical and become the focus for invoice-price-only negotiations. Other significant margin risks come from the increased number of product ranges and complicated inventory and stock movements.
Many companies are now carrying thousands of products. Up to 90% of these are considered slow-moving, making up just 10% of the revenues. Outsourcing companies that use cost-plus mark-up methodologies severely restrict their ability to improve profitability.
Through detailed analysis of products at a line-item or SKU level and the use of algorithmic pricing models, incremental margin opportunities can be identified.
Using a sophisticated customer value driver model, customer price and contract negotiation strategies can be developed to move the conversation with the customer away from price only or commodity-based discussions to a more sophisticated value-based approach to price setting.
Expertise
Our experience with outsourced products and services ranges from stationary, IT, printers/toners, laundry/facilities, cleaning products, hospital supplies, food and beverage, media, logistics and freight.
Areas where we can help your business include:
Business services case studies
Results from pricing work with outsourcing, logistics and business services companies.
Toll Group
Toll Group modelled A$8.4m of year-one EBIT uplift on A$1.1b of revenue through algorithmic pricing, new approval workflows and value-linked customer agreements.
Ricoh Australia
Ricoh Australia identified A$8.7m–13.5m of EBIT opportunity across four business lines by moving away from cost-plus pricing and tightening deal governance.
Let’s work together
Whether you're ready to optimise your pricing or want to explore what's possible, we'd love to hear from you.