Episode Details

Connect with Per Sjofors:

Email: per@sjofors.com.

Website: www.sjofors.com

Lisa Ryan: Hey, it's Lisa Ryan. Welcome to the Manufacturers Network podcast. I'm here today with Per Sjofors. Per is the founder of Sjofors Partners. Pricing has always been an interest area for Per. As a serial entrepreneur running companies in Europe and the U.S., he did pricing experiences. Now some of these experiences worked spectacularly well, and others not so much. As a result, Per founded his company out of his frustration that his business schools taught him that pricing is too abstract, too academic for a business executive to act on. Per, welcome to the show today.  

 Per Sjofors: Thank you very much, Lisa, and thank you for having me.

Lisa Ryan: Absolutely. Share with us a little bit about your background. What brought you here, and with this whole focus on pricing and the craziness that goes along with that?

Per Sjofors: Well, it's a little bit of what you just mentioned. I had been able to run a few companies here in the U.S. and in Europe before I moved here. And these experiments we did with pricing - some were spectacular. I mean, we could see revenues are up 25 percent the next quarter, and others were complete duds. And business school learnings were so academic and so theoretical that it was useless. So, 13 years ago, I decided I was too old and too opinionated to report to anybody.  

So I decided to take that interest in pricing and develop a process that would make every pricing experiment a success. That is the process that we've been using ever since. And the core of the process is to understand how you can predict sales volume at different prices. Now, once you can predict sales volume at different prices, and when you can predict revenue at different prices, you can set the price that is the best for you if that prediction is correct.

 Lisa Ryan: Right. When it comes to manufacturing, you and I have talked about this a couple of times, but we think that there's just one way to do pricing in cost-plus. But this is one of the biggest mistakes that manufacturers are making. And there are two others. What do you see about these mistakes, and how can we start to turn that around and be more profitable?  

 Per Sjofors: Cost-plus is a big one. I've been there myself in some of these companies. We use a rule of thumb because different industries have different rules of thumb - some are 35 percent, some is 50 percent, some double the price. In some industries, you go up as high as ten times the cost. But, it's all irrelevant because your cost as a manufacturer has very little to do with the value you deliver to customers.  

 There's another very logical thing, but a lot of manufacturers don't think about it. And this is if you manage to reduce your cost, your price goes down in dollars. If you manage to reduce your cost and have your prices the way they are, there's no reason to make a little more money. The other another mistake, of course, is to look at a competitor.  

 If you have competitors that have prices online, it's quote-unquote, easy. And many times, in manufacturing, you don't have that ability. You try to get somebody at last year's price list or maybe an international price list or something like that. And they'll give you some hints somewhere where competition or pricing sets their prices. But it doesn't tell you the story. It doesn't tell you what deals they're making, doesn't tell you about bundles they're making. It doesn't work. That tells you what kickbacks they may offer to their clients and special incentives, and so forth. So trying to set a price based on a competitor leads to using the wrong price. And by the way, that competitor may well have gu