Pricing Power

Pricing power is the ability to raise prices without losing customers, the clearest sign they value what you do more than what it costs them to switch. Buyers price it in the margin and the multiple; a business that has it keeps its margins when input costs rise.

Family: Earnings
Position: B2
Scored: Against a target

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1:30

Whiteboard session

Nick on pricing power

Nick works through pricing power: what a buyer is really asking when costs go up, how they test it in diligence, and the first thing to fix.

In this session

01The questionWhen costs go up, who pays? Pricing power is the ability to raise prices without losing customers, the clearest signal that they value the work more than the cost of switching. A buyer looks for it before they look at growth.
02Two picturesA specialty manufacturer passes a steel price increase through with thirty days' notice, and the orders keep coming. A landscaping firm that has not raised its rates in four years pays for every cost increase out of its own margin.
03What is looked atThe price increases that actually stuck over the last twenty-four months, set next to volume and churn over the same period. Did you raise prices, and did people stay? Buyers test it in diligence and price what they find for themselves.
04The first fixMake an annual price increase a policy rather than a decision, and make room for better customers by letting the lowest-margin ones go.

Nick LongCEO and co-founder

Table 1. Entry 05 in the Exit Elements^™ specification, version 1.4.
Symbol	Pr	Number	05	Family	Pr Earnings	Position	B2
Scored as	Against a target	Compounds	ME	Worked in	Scale	Pillar	Growth potential

§1 Definition

What is pricing power?

Pricing Power is your ability to raise prices without losing customers. It is the clearest signal that customers value what you do more than what it costs them to switch. Businesses with Pricing Power keep margins when their input costs rise; businesses without it absorb the cost.

Ability to raise prices without losing volume.

A specialty manufacturer that passes steel price increases through with a 30-day notice has Pricing Power. A landscaping firm that has not raised rates in four years for fear of losing accounts does not.

Use cases

Implementing an annual price increase as policy, pricing by value delivered rather than hours spent, and dropping the lowest-margin 10% of customers to make room for better ones.

The earnings family

The economic engine. Earnings elements determine the size of the number a multiple is applied to.

Earnings. Pricing, margin, growth, overhead, recurring revenue, and retention set the number a buyer multiplies.

Meet the family

§2 Measurement

How is pricing power measured?

Realized price increases over the trailing 24 months, set against volume and churn in the same period.

Critical gapLeaking valueDevelopingStrong51Today100Target

Critical gap: 0 to 24
Leaking value: 25 to 49
Developing: 50 to 74
Strong: 75 to 100

Figure 1. Sample assay for Acme Industrial: pricing power scores 72 today (developing) against a target of 80 (strong). Sample scores, not a client. Your own assay comes from the exit score and the valuation.

How the scale reads

Every element is scored from 0 to 100 against what a sophisticated buyer expects at close.
Risk elements are scored as control: higher is safer.
Inputs are recorded, not targeted.
Outcomes are derived from their feeding families.

Figure 2. Margin Engine (ME) is the overlap of Pricing Power and Gross Margin: each set is one element, drawn in its family color; the compound is what a buyer finds where they meet.

§3 Venn

How pricing power bonds into margin engine

A compound is two elements a buyer reads as one property. Pricing power held at the gross-margin line. Growth without it is volume, not value. Each circle is one element, scored on its own; the overlap is margin engine, read from the parts together rather than from any one of them.

Pricing Power is one of the circles. Its own score comes from the assay; the compound's comes from all 2.
Where one circle is weak the overlap shrinks, and with it the price a buyer puts on the whole. With gross margin strong and pricing power weak, the overlap is still not margin engine.
Hover a circle to read what that element measures, or the centre for the compound itself.

Tm Tl Cp Dm Pr Gm Rv Oe Rr Rt Cf Pd Md Se Ip Br Ta Sy Od Dd Cc Kp Lc Td Sp Ac Dr Sc Tx Es In Ap Ev Op Fr Lg

Figure 3. Pricing Power at B2 in the standard table: column B, row 2. Columns group the families; the wealth series runs beneath.

§4 Position

The earnings series

6 elements share the family. Read them together: a buyer prices them as a group.

§5 Compounds

What pricing power forms

Compounds are the properties buyers actually price: several elements bonded into one. Each is scored from its parts.

Pr+Gm→ME

Margin Engine

Pricing power held at the gross-margin line. Growth without it is volume, not value.

Pricing Power · Gross Margin

Bonds withGm Gross Margin

§6 In the FNDRS journey

Where pricing power gets worked

The assay scores it. The process, the pillars, and the platform move it. Table 2 lists every place this element is on the agenda.

Table 2. Where element 05 appears in the FNDRS journey.
Where	What happens	Alongside	Go
StageScale	Scale with intention. Grow revenue, profit, capacity, and capability without adding fragility or owner dependence. The earnings engine and the multiple, worked in order of dollar impact.	Gm Rv Oe Rr Rt Md Se Ip Br Ta Sp	The process
Pillar of valueGrowth potential	Not a hockey stick, a plan with evidence. Buyers pay for growth they can underwrite: a market with room, pricing that holds, and a motion that does not depend on the owner closing every deal.	Rv Dm Se Ip Ta Br Sy	The pillar

Figure 4. The route pricing power takes: buyers, diligence, and the deal itself set its effect; the FNDRS valuation does not compute it.

§7 In the valuation

How does pricing power affect a sale?

Priced by buyers Not modeled

Buyers price it in the margin and the multiple.

The FNDRS valuation does not compute this element, either by design or because it is not yet measured. Its effect shows up in what a buyer will pay, in diligence, or in the structure of the deal and the proceeds.

What FNDRS reads

Not measured by the valuation today. The nearest reading is how easily the business could be replicated.

How the table meets the number

Find out how pricing power scores in your business

The exit score is the first assay: fifteen minutes, six pillars, and a first read on the elements that matter most.

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