Building Competitive Yet Profitable Pricing For Waste Collection
In our previous article, we discussed some aspects of outbound sales in Waste Collection. A good customer lead fulfils the following criteria:
- is aligned to the current operations;
- has a lower marginal cost;
- is profitable for the existing collection routes.
Once a sales manager connects to the right prospect, it is time to negotiate the service price.
Reconciling route density, competitive pricing and long term profitability is always a challenge.
What’s more, the objectives of the Sales and Operations teams of a waste collection company are not always aligned. While the salespeople are motivated to secure more revenue, operations managers need to care about the overall route profitability and service quality.
Common pricing strategies and why they don’t work
Approach #1: Upfront discounts
One approach is to acquire en-route customers through discounts and lowered prices. Such an approach could even mean selling at a marginal cost. However, over time, there will be no more customers on a route to pay for the route’s fixed costs.
Approach #2: Yearly increases
Another common strategy is to enter with a low price and increase it afterwards in yearly price increases. This strategy is even more dangerous for two reasons:
- Feeling frustrated and cheated, customers will not renew their contracts and destroy Lifetime Value (LTV) KPI and the business portfolio over time.
- Consumer protection trends around the world are increasingly forbidding arbitrary price increase and contracts lock-in. A company whose portfolio profitability depends on overcharging locked-in customers is taking a considerable risk.
Approach #3: Using Excel to calculate the price
Pricing is derived from a series of incredibly complex decisions, and which are consistently changing.
It’s not easy to capture these complexities in Excel spreadsheets, plus they are notoriously difficult to update. Over time, subtle calculation errors can creep in and go unnoticed, resulting in severe errors in your pricing calculations.
Other industries, like airline companies, have moved away from Excel and now use dedicated and sophisticated tools for pricing decisions. We believe that the waste industry deserves the same level of sophistication.
What is going wrong, and how to fix it?
It is also worth mentioning that in our experience, price strategies are poorly enforced. Even though a price strategy is agreed upon, sales teams make many authorised or unauthorised exceptions, so many exceptions that one could not guess the original price strategy by looking at the actual prices sold.
Perhaps a worse scenario is when there is no systematic feedback loop to demonstrate whether a price strategy has successfully increased revenue or profit.
Waste companies that have been in business for decades, across multiple continents, should start making full use of the rich data points they have amassed over the years.
Using AI to create a systematic feedback loop on pricing decisions will allow these companies to develop more effective pricing strategies.
Try a science-based pricing strategy!
Artificial Intelligence (AI) can help strategise the sales efforts and recommend the ‘best’ leads for the current routes. Using existing operational data, algorithms can instantly predict a service cost for a new customer lead.
This cost is calculated based on the amount of waste generated by the potential customer and simulated churn and growth rates of surrounding customers.
The next step will be to narrow down the list of leads to those with the lowest marginal costs.
By doing so, the collector can decide whether certain leads are worth pursuing, and what will be the right price point to win a deal and stay profitable.
Learn more about Waste Labs’ products to strategise your sales efforts when finding new commercial and industrial customers.
