Price Waterfall Analyzer
Visualize margin leakage steps. Identify exactly where value is lost between List Price and Pocket Margin to plug the holes in your profitability.
Waterfall Steps
$63.00 lost per unit from List Price.
Net Price Evolution
Summary Table
| Component | Impact | Resulting Level |
|---|---|---|
| List Price | - | $100.00 |
| Standard Disc. | -15 | $85.00 |
| Invoice Price | - | $85.00 |
| Rebates | -5 | $80.00 |
| Freight | -3 | $77.00 |
| Pocket Price | - | $77.00 |
| COGS | -40 | $37.00 |
| Pocket Margin | - | $37.00 |
Plugging the Leaks
Where is your margin going?
The Biggest Drop
Identify the largest red bar. Is it standard discount? Rebates? Focus your negotiation training there.
The Pocket Price
Your Pocket Price is $77.00. If this is below your target, you must either raise List Price or cut deductions.
Unnecessary Giveaways
Look for small leaks like 'Freight' or 'Payment Terms'. Often these are given away for free but add up to millions in lost profit.
Execution Steps
Set your 'List Price' (MSRP) as the starting block.
Add deduction steps for every cost that reduces revenue (e.g. Standard Discount, Rebates, Freight, Payment Terms).
Add 'Subtotal' blocks to visualize key stages like Invoice Price or Net Price.
Include COGS (Cost of Goods Sold) as the final deduction to reveal the true Pocket Margin.
Pro Strategy
- Focus on 'Off-Invoice' leakage. Sales reps often trade away 5% here and 2% there (freight, extended terms) which destroys net margin without lowering the invoice price.
- If your 'Standard Discount' is consistently high (e.g. 40%), your List Price is likely artificially high, creating friction and mistrust with buyers.
- Use this visual to deny discount requests: 'We can't give another 5% because freight and rebates already took 12% of the margin'.
Core Concepts
Pocket Price
The actual revenue left in your pocket after all discounts, rebates, and transaction costs are subtracted from the List Price. This is your 'real' price.
Margin Leakage
Hidden costs that erode profitability, often invisible to sales reps who only focus on the Invoice Price (e.g., freight absorption, extended payment terms).
The Waterfall
A visualization technique that breaks down the sequential impact of positive and negative values on a starting total, revealing the 'Net Price Band'.
What is Price Waterfall Analyzer?
The Price Waterfall is a diagnostic tool used in transaction pricing management. It reveals the 'Net Price Band' by accounting for every single discount, allowance, rebate, and cost that occurs between the list price and the final profit. It shifts focus from 'Top Line' revenue to 'Bottom Line' reality.
Best For
- • Auditing profitability of specific customer accounts.
- • Identifying which discount categories are out of control.
- • Setting new discount approval thresholds for sales teams.
Limitations
- • Requires accurate data on 'hidden' costs like freight and payment terms.
- • Does not account for overhead (Fixed Costs), focusing only on variable contribution.
- • Static view; does not show volume impact of price changes.
Alternative Methods
Cost-Plus Analysis
Simple markup calculation that ignores the nuances of deductions.
Customer Profitability Analysis (CPA)
A broader view that includes cost-to-serve (support calls, returns).
Industry Applications
See how this methodology generates real revenue uplift in different sectors.
Industrial Manufacturer
Company was hitting revenue targets but missing profit goals.
Waterfall analysis revealed that 'Freight Absorption' and '2% Net 10' payment discounts were costing 4% of margin.
Software Distributor
Partners were demanding higher commissions.
Showed partners the waterfall proving that after MDF (Marketing Development Funds) and Rebates, the vendor margin was thin.
Consumer Electronics
High volume but low cash flow.
Waterfall showed 15% leakage in 'Returns & Allowances'.