Before you ask the board to sign off on a pricing floor, war-game it against last year's deals. Set the floor as the strictest of three tests: the margin each deal must keep, the payback period on what it cost to win, and a competitive reference you can defend. Count every concession as discount, including free months, extra seats, and service credits. Name who can approve a deal below the floor, log every exception with a reason, and decide what the board sees each quarter. Paste list prices, four quarters of closed deals, approval history, and unit and acquisition costs into one request. Instruct Pingpong to flag floors that fail any of the three tests, concessions missing from the discount figure, approvals that cluster at quarter end, and exceptions with no stated reason. Review your written answers in a second round.
This page is for chief executives and finance and revenue leaders setting the minimum deal economics the company will accept. Changing list prices or packaging is covered in before you change pricing. Executive starting points live under Pingpong for executives.
Three tests, and the floor is the strictest
- Margin: the deal keeps gross margin above a set level after hosting, support, and any services you give away.
- Payback: what you spent to win the customer comes back within a target number of months at the discounted price.
- Competitive reference: the price a serious alternative would charge for the same scope, documented from real deals.
Most floors are set by the third test alone, usually from what a rep heard a competitor offered. That is the test most likely to drift downward.
How floors erode
Nobody decides to abandon a floor. It wears away at the end of quarters. A rep is short of quota, a buyer knows it, and the deal comes in at 38 percent off with a note saying the customer is strategic. The approver, who also has a number to hit, signs. Next quarter that deal sets the reference. Concessions that do not look like discounts, such as three free months or a services credit, never show up in the discount report at all. Within a year the real floor is several points lower, and the board learns about it from a falling gross margin.
A worked example
This example is illustrative and does not describe a customer. A subscription software company has a stated floor of 35 percent off list for new customers. The board asks how it is enforced.
The finance leader pastes the price list, a year of closed deals, approval logs, margin by deal, and acquisition costs.
A useful pass finds that the median discount rose from 18 to 31 percent over the year. Counting free months and services credits, 22 percent of new deals fell below the floor, against 9 percent in the discount report. The head of sales approved nearly all exceptions, and 70 percent of them were signed in the last two weeks of a quarter. Half the exceptions have no reason recorded. At 35 percent off, payback on acquisition cost runs 28 months against a target of 18, so the floor itself fails the payback test. It was set by matching a competitor two years ago.
The revised floor applies all three tests and lands at 28 percent off list for new customers and 20 percent for renewals. Effective discount includes every concession. The deal desk can approve down to the floor. Anything below it needs the finance leader and the chief executive, with a written reason and an expected return, such as a reference customer. Each exception is logged. The board receives a short quarterly view: share of deals below the floor, effective discount trend, exceptions by approver, and how many closed in the final two weeks.
If the deal economics point to a list price problem, the review becomes a pricing change, covered in war-game a pricing change before the board books the revenue.
Who may go below it
- The deal desk, down to the floor, within the published rules.
- The finance leader and the chief executive together, below the floor, with a written reason.
- The board, for any program that would put a whole segment below the floor.
A request you can copy
Below are our list prices, a year of closed deals with every concession, approval logs, margin by deal, and acquisition costs. Test our current floor against margin, payback, and competitive reference. Recalculate effective discount including all concessions. Flag approvals clustered at quarter end and exceptions with no reason. Suggest a floor, an approval ladder, and a quarterly board view. Stop there so we can answer in writing, then review our answers.
How Pingpong runs the review
The web review app sends your request through several models in order. Each later model receives the original request and every earlier answer, with instructions to assess the work so far. For the steps inside the app, see running your first review.
What a model can't review
A model cannot tell which strategic deal will turn into a reference that wins ten more. It can make sure every exception says so and that someone checks a year later.
When the decision goes to the board, see war-game a decision before the board meeting. More guides live under work decisions before you commit.