Pricing Power 101: The 1% Price Lift That Moves Profit 8–11%
By Kirk W. McLaren
Small price changes have outsized profit impact; the “pocket‑price waterfall” exposes leakage you can fix in weeks
The Blind Spot CEOs Miss: Price Discipline
Most CEOs think growth comes from more customers, bigger projects, or a new product line. Those matter—but here’s the truth I’ve seen time and again: the fastest way to improve profit is usually sitting right under your nose, in your pricing.
Even tiny changes create outsized results. McKinsey research shows that a 1% price increase can lift operating profit by 8–11% for most companies, often more than any comparable improvement in cost cutting or sales volume.
So why don’t more firms pull this lever? Because pricing power is rarely managed with the same rigor as costs or sales. Discounts slip through. Special deals get buried. And the actual “pocket price” collected is often far less than the price that was listed or invoiced.
That’s where the concept of the price waterfall comes in.
The Pocket Price Waterfall: Where the Money Leaks
Think of your list price as the top of the waterfall. From there, every “adjustment” creates a leak:
List Price – the official sticker.
Invoice Price – after published discounts, rebates, or promotions.
Pocket Price – what you actually keep after late-payment penalties, free services, freight, credits, or one-off concessions.
By the time the invoice becomes cash, many firms are surprised at how much value has drained away. In one professional services client, our review found they were giving away more than 6% of annual revenue through ad-hoc discounts, waived change orders, and “favor” credits no one tracked. That’s margin they didn’t even know they were losing.
How to Plug the Leaks
Fixing pricing power doesn’t mean gouging customers. It means getting disciplined about how and when concessions are made. Here are practical steps mid-market firms can take:
Discount Governance – Set clear thresholds for who can approve what. A 5% discount might be within a sales manager’s discretion, but anything higher requires CFO or CEO sign-off.
Give/Get Rules – If you give something (like faster delivery or a free add-on), you must get something in return (longer contract term, larger order, or upfront payment).
Escalators in Contracts – Tie pricing to inflation, input costs, or value delivered. Many firms leave money on the table by letting contracts run flat for years.
Pocket Price Tracking – Build reports that show actual collected revenue per unit sold, not just list or invoice. This transparency alone usually changes behavior in weeks.
The Big Shift: From Revenue Focus to Margin Focus
One of the core arguments in The Growth CFO Void is that too many finance teams stop at reporting sales numbers, without connecting them to margin. Pricing is the clearest example. Sales celebrates closing a big deal at a discount. Finance tallies the revenue. But no one surfaces the fact that the discount cut profit in half.
That’s the void—and closing it means shifting the conversation. The CEO doesn’t just need to know “what we sold.” They need to know: “What profit did we keep, and where did it leak?”
A Simple Win: Run a Price Waterfall Sprint
You don’t need a massive transformation to reclaim pricing power. Many firms see quick wins by mapping their price waterfall and plugging the biggest leaks. In five weeks, it’s possible to:
Quantify actual pocket price by customer or service line.
Identify where discounts and concessions add up.
Install rules and reporting to prevent margin drift.
For most, this creates a six-figure swing in profit without adding a single new client.
Final Thought
Pricing is often treated as an art. But the best-performing firms treat it as a system. They know that the difference between a 0% and a 1% price lift is the difference between standing still and unlocking 8–11% more profit.
The takeaway is simple: you don’t always need to sell more to make more. Sometimes, you just need to keep more of what you’ve already earned.
👉 Run a Price-Waterfall quick win in your Sprint. It’s the fastest way to stop profit leaks and give your firm back the margin it deserves.
