The problem: costs move while price lists stand still.
A supplier increases the cost of a common fitting, but the branch price list still reflects last year's purchase cost. A salesperson discounts from that list to match an old customer expectation. Revenue looks healthy while contribution quietly shrinks on every order.
The opposite can happen too. A blanket increase preserves margin on one product but makes another uncompetitive. Customer contracts, quantity breaks, freight and special handling make the effective price different from the list price. Looking only at an average margin can hide the items and accounts that need attention.
Commercial teams often rely on spreadsheets exported at different times. Finance sees cost, sales sees account history, and branch managers see local demand. Without a shared basis, recommendations turn into debates about which number is current rather than decisions about the price itself.
Where it shows up
- Supplier cost changes take weeks to reach customer prices.
- Discounts are measured against stale list prices.
- Similar transactions receive inconsistent prices without a clear reason.
- Customer agreements are checked manually before every change.
- Margin reports reveal leakage after invoices have already gone out.
Why it's hard to keep up by hand.
The challenge is not finding a higher number. It is choosing an effective price that fits the economics, agreement and context of each transaction.
Cost has several meanings
Last purchase cost, replacement cost and landed cost answer different questions. Freight, rebates and handling can change the true economics of a sale.
Demand is not a clean experiment
A change in sales volume can reflect seasonality, availability or one large project. It does not automatically show how customers respond to price.
Policy needs guardrails
Contracts, approval limits and effective dates constrain changes. A recommendation must show which rules apply and who can authorize an exception.
How Faraday fixes it.
Faraday makes the basis of each recommendation visible, so commercial teams can act on margin leakage without applying indiscriminate increases.
- Step 1
Connect price and cost records
Read item costs, supplier changes, price lists, customer agreements, discounts and invoice history. Agree which cost basis and margin measure each decision should use.
- Step 2
Find the actionable differences
Compare current prices with costs, target margins and relevant transaction patterns. Flag stale costs, below-floor lines and inconsistent exceptions, keeping demand and availability context in view.
- Step 3
Review scenarios and limits
Show proposed prices and their arithmetic effect on margin. Separate a calculation from a forecast of customer response, and route contract-bound or sensitive changes for review.
- Step 4
Approve and publish changes
Commercial owners approve the price, scope and effective date before updates are written back. Retain the previous value, reason and approval so teams can inspect what changed.
Pricing review · Cost changes
Example data · Recommendations, not published prices
| Product / account | Current basis | Proposed action | Why |
|---|---|---|---|
| Fitting · Standard list | Cost $72 / Price $90 | Review $96 price | At unchanged volume, gross margin moves from 20% to 25%. |
| Bearing · Contract account | Fixed-price agreement | Keep contract / flag renewal | Do not override the active agreement with a list-price update. |
| Filter · Slow-moving stock | Falling orders / excess stock | Review demand context | A price increase may not address the underlying inventory issue. |
What changes for your team.
| Workflow | Today | With Faraday |
|---|---|---|
| Cost changes | Find leakage in a later margin report. | Review affected prices when the cost basis changes. |
| Analysis | Apply blanket increases to broad groups. | Inspect item and account context before changing price. |
| Agreements | Check contracts in separate files. | Surface relevant constraints with the recommendation. |
| Approval | Publish spreadsheet updates with little context. | Approve scope, reason and effective date together. |
| Learning | Attribute every volume change to price. | Review margin, demand and availability together. |
How to measure the impact
Track realized gross margin, price realization, exception frequency and quote conversion alongside units sold and customer retention. Use consistent cost definitions and separate contractual changes from discretionary ones. A modeled margin improvement is not a realized result until actual transactions support it.
Common questions about pricing optimization.
What is pricing optimization?
Pricing optimization evaluates prices against business objectives using costs, demand, customer context and commercial constraints. In industrial distribution and manufacturing, a practical starting point is correcting stale prices and unexplained margin leakage rather than assuming every item needs dynamic pricing.
What is the difference between margin and markup?
Gross margin divides gross profit by selling price; markup divides gross profit by cost. With a cost of $72 and a price of $90, profit is $18, margin is 20% and markup is 25%. Confusing the two can produce prices below the intended margin.
How do you calculate a price for a target gross margin?
Price = cost ÷ (1 − target margin), with the margin written as a decimal. A $72 cost and a 25% target margin imply a $96 price. This calculation assumes the chosen cost basis is complete and does not predict whether customers will accept that price.
Does optimization mean raising every price?
No. A review can recommend holding a contract price, correcting an inconsistent discount, changing a quantity break or investigating a cost record. Availability, excess stock and customer commitments can matter as much as a nominal margin target.
Can order history prove price elasticity?
Not by itself. Historical price and volume are affected by seasonality, stockouts, customer mix and sales activity. Treat elasticity estimates cautiously, document assumptions and use controlled comparisons where practical rather than labeling correlation as a causal effect.
What data does Faraday need?
Item and landed-cost records, supplier cost changes, price lists, discount rules, customer agreements and transaction history, plus relevant demand and availability context. Agree on the margin definition and approval policy before evaluating proposed changes.
Who approves price changes?
Your commercial owners do. Faraday presents recommendations with the cost basis, relevant rules and proposed effective date. Start with human approval and only automate narrowly defined actions if you explicitly choose to do so.
