I have told people it is possible to double the value of a company in less than a year, simply by discovering and implementing the right focused pricing strategies.
That's right. Pricing Strategies to DOUBLE the value of a company in LESS THAN 1 YEAR.
But for some reason, it seems difficult for people to believe. This is understandable, since I don't think many companies are doing this. Some are. Amazon is. Dominos Pizza is. And chances are, your company could be doing this too.
So, in this short blog, I’m going to use an example to show you how it can be achieved, using the Five Sacred Metrics of Pricing Success and the Company Value Calculator on my PriceForGrowth.com website, available to any registered buyer of my book Price for Growth: A Revolutionary Step-By-Step Approach to Massively Impact the Value of Your Company by Leveraging Focused Pricing Strategies (available on Amazon & Kindle).
We’ll start with a company who currently does $100 million in revenue and $10 million in annualized profits. This company has a net repeatable revenue growth rate of 6% per year and is currently valued at $100 million, implying a valuation discount rate of 16% on the annual profits. To calculate this number, we used the Gordon Growth Valuation Formula:
PV represents the present value of a stream of future profits. [r] represents the present value discount rate. And [g] represents the net repeatable revenue growth rate. Rearranging this formula we can solve for [r], the discount rate by using the following formula:
The net repeatable revenue growth rate is based on a new customer revenue acquisition rate of 15%, plus an existing customer revenue expansion rate of 1%, minus an existing customer churn rate of 10%. Using the company value calculator, shown below, everything checks out:
And so now, from this, we can look at improvement opportunities and start designing focused pricing strategies to improve our “sacred” pricing metrics. For illustration purposes, let’s say we first implement a new customer trial incentive that improves our new customer acquisition rate from 15% to 18%. Then we implement a pricing incentive to get customers to fill out a monthly satisfaction survey, which allows us to prevent some of the unwanted churn and we improve that metric from 10% to only 8%. And finally, we create a customer growth incentive that encourages existing customers to buy more of the products and services they need from us, which results in an existing customer revenue expansion rate improvement from 1% to 2%. In total our pricing strategies have increased the net repeatable revenue growth rate from 6% to 12%.
And so using the same company value calculator we input the new metric values, and we see what happens to the value of the company:
It has increased by 150%, from $100 million to $250 million. And all we did to achieve this is improve our new customer revenue acquisition rate by 3 percentage points, increase existing customer revenue growth by 1 percentage point, and decrease existing customer churn by 2 percentage points, thereby doubling our overall growth rate from 6% to 12%. And we haven’t even considered that by growing at double the rate, next year’s annualized profits should be closer to 11.2 million. When you plug that number in, you see that the total calculated value of the company is now $280 million, shown in the company value calculator output below:
This illustration shows the power of growth and why creating focused pricing strategies to stimulate the right growth levers can have a massive impact on your company value. The company value calculator output shown below illustrates how all the different changes can come together to result in the massive changes to the value of the company.
It is not impossible to double the value of your company in a period of 1 year, just by discovering, creating, and implementing the right focused pricing strategies for your business. The key is to first understand where to focus your improvement efforts and then to design relatively small changes to your pricing strategies in ways that accomplish the desired improvement surgically, without undermining customer buying inertia and existing profits.
If you’d like to see your company’s easiest path to doubling its value, reach out to me at jeff@revolutionpricing.com
Cheers!
About the Author: Jeff Robinson brings the perspective of two-decades working with companies across industries to help them improve their pricing practices and results. He has designed, marketed, and implemented pricing solutions used by hundreds of companies, whose combined revenues total more than one trillion dollars. Having earned a bachelor’s degree in economics, combined with an MBA in marketing and finance, he has brought new perspectives to the world of pricing, often challenging prevailing notions or widely accepted strategies. Combining his formal education with over 20 years’ experience, he has recently authored the book, Price for Growth, A Step-by-Step Approach to Massively Impact the Value of Your Company by Leveraging Focused Pricing Strategies. Today, he is leading the development of a new company, Revolution Pricing, focused on helping companies create and select appropriate pricing strategies for maximizing the value of their own companies.