Guide 03 · for owners and deal teams
The pocket-price waterfall: finding the margin in your own invoices
Most companies know their list prices to the cent and their realised prices to the nearest guess. The difference is usually the cheapest margin in the business.
By Cristian Paun · partner, Value Creation and Growth · Makers of New
The short answer
Take every invoice line for a year. Start from the list price and subtract, per unit, the on-invoice discount, the rebates and bonuses, the cost of the payment terms and the freight or free service. What is left is the pocket price, what the customer actually pays. Sum the difference by segment and by customer, and you have found the leakage. Recovering one point of it goes straight to EBITDA.
Why it matters now
When volume is hard to win, price is the lever with the shortest path to profit, because nothing else in the business has to change for it to land.
How to do it
- Get the transaction data; the price list comes second. Invoice lines with customer, product, units and every deduction.
- Find the deductions that sit off the invoice. Year-end rebates, marketing funds, free delivery, extended terms. They are where the leakage hides.
- Build the waterfall per unit, weighted by volume. List, then each deduction in turn, then pocket.
- Sort customers by pocket price over list. The spread between the best and the worst customer in the same segment is usually the finding.
- Read willingness to pay by segment. Interview five to ten customers. Change price where they already see the value.
- Write the capture plan. Each action with its euros, its months, its owner and its customer risk.
- Put governance behind it. Who may approve an exception, and the report the board sees each quarter.
What good looks like
SIMULATION, an invented distributor, euros per unit, volume-weighted.
| Step | Euros | Share of list |
|---|---|---|
| List price | 62.50 | 100% |
| On-invoice discount | 6.25 | 10% |
| Rebates and bonuses | 1.25 | 2% |
| Payment terms and freight | 2.00 | 3.2% |
| Pocket price | 53.00 | 84.8% |
Where it goes wrong
- Only the on-invoice discount is measured. The rebates and free services are often larger.
- Everyone gets the same increase. Price moves where the value supports it, segment by segment.
- The leak closes and reopens. Without an approval rule and a report, exceptions return within a year.
The instrument
The Pricing Read takes four weeks from the invoices to a priced capture plan. The same waterfall runs inside the margin page of a MakersOS room, where each recovery becomes a move with an owner and a date.