Case Study: Pricing for Profit

Case Study: Pricing for Profit

Several years ago, I was consulting with a client in the staffing industry that was having a profitability problem:

We have happy customers and seem to be doing well, but we just aren’t making more money

Sound familiar?
After visiting with the frustrated owner of the business, I visited various departments to understand the people and processes behind the numbers.


My first stop was at the operations department to learn about how the jobs were staffed.  I found out that on any given job, the company utilized both 1099 employees and W2 employees.  I asked them if they had the ability to track which type of employee worked on which job and they let me know that they could.
(Intuit offers a great visual aid on the difference between 1099 and W2 workers here).


Next, I met with the sales department to determine how they were setting prices.  I learned that they priced their services on a cost-plus basis using a markup of between 30% and 50%.
Their sales force also related to me that they were constantly being beaten up on price by their customers.


My last stop was to the accounting department to see what the financial statements could tell me about the company’s lackluster profitability.  Among other things, I found that overhead was running 20%-25%.

Findings for Pricing for Profit Case Study

Based upon all of my investigating and conversations with the various departments within the company, I found several issues:
Additional costs were not reflected in price.
The type of employee that would be used on the job (1099 vs. W2) was not taken into account when the job was bid.  Consequently, the additional cost of the payroll taxes for using W2 employees was not being captured in the price.
Margin and markup were used interchangeably.
The sales department had assumed a 30%-50% markup was the same as a 30%-50% margin when setting prices.  Further, they did not understand the impact this confusion had on profitability.
margin does not equal markup
(See Margin vs. Markup for further explanation of the difference).
Overhead couldn’t be covered.
The current pricing structure was not sufficient to cover the company’s overhead and still allow for a profit.
The answer seemed simple; the company had a pricing problem.
The wrinkle was that the sales force was already feeling great pressure to keep prices low in order to keep their customers, and didn’t have the confidence to approach them about a price increase.


My solution was to put together a communication tool for the sales force.  The tool was nothing more than a spreadsheet that broke out all the costs associated with delivering the service down to net income.
But its real value was in the confidence that it gave the sales people.  Not only did it allow them to understand what it would take to make a sale profitable, it gave them…

  1. A justification to go to their customers and ask for a nominal 1%-2% increase in price
  2. A working bid model for new customers


In a situation such as this one, it’s easy to default to the old & trusty fix: Reduce overhead. Cut costs.
But this is where the rubber meets the road in being a financial leader or CFO. The problem is so often more complex than large expense accounts on the P&L. You must interact with various departments, think critically and problem solve.
Identifying opportunities like those detailed above comes more naturally after years of experience, but these skills can also be acquired through training. Check out our Financial Leadership Workshop Series if you or someone in your company is eager to learn and develop.


Are you in the same boat as our client? Does it feel as though you should be making more money than you are? Download our Pricing for Profit Inspection Guide below.
pricing for profit, Pricing for Profit Case Study

[box]Strategic CFO Lab Member Extra
Access your Flash Report Execution Plan in SCFO Lab. The step-by-step plan to manage your company before your financial statements are prepared.
Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]
pricing for profit, Pricing for Profit Case Study

IP Valuation & Monetization For The C-Suite

Intellectual Property (IP) defines and protects the sources of goods and services in the marketplace, the products and services offered for sale and the content surrounding such offerings.  Whether trademarks, patents, copyrights, or other IP, it is critical that C-Suite strategy drives and shapes the creation, valuation use and monetization of all its intellectual property.

Read More »

Financial Ratios

See also: Quick Ratio Analysis Price to Book Value Analysis Price Earnings Growth Ratio Analysis Time Interest Earned Ratio Analysis Use of Financial Ratios Financial Ratios are used to measure financial performance against standards. Analysts compare financial ratios to industry averages (benchmarking), industry standards or rules of thumbs and against internal trends (trends analysis). The

Read More »

Margin vs Markup

See Also: Gross Profit Margin Analysis Retail Markup Chart of Accounts (COA) Margin Percentage Calculation Markup Percentage Calculation Margin vs Markup Differences Is there a difference between margin vs markup? Absolutely. More and more in today’s environment, these two terms are being used interchangeably to mean gross margin, but that misunderstanding may be the menace

Read More »


Financial Leadership Workshop

MARCH 28TH-31ST 2022


Financial Leadership Workshop


August 7-10th, 2023

WIKI CFO® - Browse hundreds of articles
Skip to content