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What Is Price Optimisation? 

According to figures, the average company spends just six hours on their pricing strategy throughout the lifespan of the business. If you fail to put  the effort in to optimise your pricing decisions then this can have a detrimental effect on your business. 

To put it simply, price optimisation is using mathematical analysis to work out how to price a product or a service and understanding how products will sell quickly at the right price and time while still making a decent profit. 

Companies (B2B and B2C) use a price optimisation formula based on things like the demand for their product, the competition, historical prices and sales as well as the cost of manufacturing goods. 

The best price point is where companies can best meet their objectives, whether that means increased profit margins, customer growth, or a mixture of both.

Price Optimisation Models can be used to tailor pricing for customer segments by simulating how targeted customers will respond to price changes with data-driven scenarios. Given the complexity of pricing thousands of items in highly dynamic market conditions, modeling results and insights helps to forecast demand, develop pricing and promotion strategies, control inventory levels and improve customer satisfaction.


1 - Collect Data

As already mentioned, businesses who use price optimisation, collate and analyse data to work out the best price for a product or service. 

The data is taken from various elements including 

  • Competitors pricing 

  • Pricing history 

  • Product condition

  • The cost of manufacturing 

In order to optimise pricing you have to collect and analyse your data; both qualitative and quantitative. Ultimately, this is the only way to find out how much your customers will pay for a product or service you offer, and breaks free from that guessing game cycle.

Quantitative data such as transactional data, customer reviews, supply and demand data etc show you how you’re doing and what needs to be changed. 

Qualitative data is about speaking to your customers  either via surveys or phone. Asking them about what they may like or dislike about your product, or the benefits they value for example.

To work on your own website’s price optimisation you would:

  1. Select the preferred optimisation model and determine desired goals.

  2. Collect historical data, including product volumes, the company's prices and promotions, competitors' prices, market conditions, product availability, seasonal conditions and fixed and variable cost details.

  3. Clarify the business's value proposition and set strategic rules to guide the price optimisation process.

  4. Load, run and revise the model.

  5. Establish decision-making processes that incorporate the results.

  6. Monitor results and upgrade data input to continuously improve pricing accuracy.

There are software options available to help you make sense of those metrics and turn them into pricing insights by delving into your data based on demographic, your customer’s interests and lifestyles and preferences.


2 - Get Familiar With Your Customers

Understanding your target audience is of huge benefit to your business. Looking at the different personas and how much they are willing to pay different prices for your products or services. This will then help you put a price to what you offer - creating tiers and the most apt packages for each customer persona. 

Each tier should be priced along your value metric (essentially what and how you’re charging for your product) and should align with your different buyer personas so that you're offering the right amount of product or service to each customer grouping. 


3 - Monitor And Test

Even once you’ve set your prices, it’s important to remember you aren’t done. Pricing is an ongoing process. 

You need to be aware of what your competitor is doing and potentially adjust your pricing accordingly. 

You should frequently be collecting data and assessing if your customers are getting what they should be for your products to ensure it's still meeting their needs and pricing desires.

If you need to have another look at your pricing and alter it, then do so. However, if you make changes too frequently or too quickly, be aware this might not look good to potential or existing customers.



If businesses fail to use price optimisation it can potentially lead to lots of problems, missed opportunities, and low revenue no matter what a business is selling be it, software, groceries, tech or machinery. 

Optimising your pricing is a way to see sales grow and is something which shouldn’t be overlooked. There are tools out there to help optimise your pricing, the process isn’t and doesn’t have to be difficult.

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