Customer Reviews

Pricing for Profitability: Activity-Based Pricing for Competitive Advantage

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Pricing for Profitability is a refreshing new look at pricing strategy the combines the disciplines of Business Strategy,Cost Accounting, Economics, Marketing and Business Strategy to create an approach where each of these disciplines will surely find a solid common ground.

The book concentrates on maximizing profitability, rather than maximizing revenue, convincingly refuting the approaches of other pricing books (written by marketing professors) that say "the more sales the better". He reminds us that revenue does not equal profit, but that profit = revenue minus expenses.

Mr. Daly asserts "there are three things that can happen that can happen in product pricing and two of them are bad", the most devestating result being that many companies underprice difficult or low-volume bids sometimes loosing significant amounts of money. He believes that many organizations have an inadeqate understanding of their costs which leaves them at a competitive disadvaantage.

This book is a must read for any manager who has pricing responsibility.

Pricing for Profitability has allowed our company to intelligently quote new projects and answer a critical question during price negotiations - "Should I walk?". We have also found the activity based pricing concepts useful for evaluating the countless cost down requests we get from our customer and understanding what we can and cannot do. I would recommend this book to anyone in a highly competitive, tight margin business.

John Daly has written an excellent book with important insights into the desirability and mechanics of using Activity Based Pricing to achieve a profit-driven pricing model.

Why is this important?

If you really understand and properly allocate your costs and use that understanding to develop an Activity Based Pricing model for your products and/or services then you are pretty well assured of profitability, particularly as you increase unit volume. Of course, this assumes you can sell at a price higher than your fully loaded, properly allocated costs.

As Mr. Daly clearly describes, traditional cost allocation methods (not to mention back of a napkin allocations) result in problematical cost distortions and lead to potentially serious pricing errors.

Anyone with profit and loss responsibility, or who would like to get there, would be well served to buy this book, read it and take it to heart. It is well written, coherent and was a pleasure to read. Daly has struck an excellent balance in that the book is not so filled with technical accounting/finance detail it is inaccessible to a non-accountant and yet it has sufficient substance to be of interest to accounting and finance specialists.

As investment bankers we receive financing requests from many companies seeking capital that are not profitable or not as profitable as they could be. Activity Based Pricing is one of the disciplines we are introducing to our clients and prospective clients to help them achieve profitability or become more profitable in order to better position them to compete for capital.

John Daly came up with a well written book that is interesting and informative on activity-based pricing. This book complements my knowledge and expertise on activity-based costing and I now know how to develop my prices based on a disciplined methodology for fixing the price.

John Daly avoids the mistake of focusing of maximizing revenue, advocated by some marketing professionals but rather puts the focus where it belongs namely maximizing profitability and ultimately shareholder value.

Any manager with responsibility for pricing will benefit immensely from reading this book.

We have used the concepts outlined in John Daly's book to develop an activity based costing model. In fact, it has proven to be so useful that we are in its third revision. It is has been a critical tool for us to remain profitable during these difficult economic times. I do not know how we got along with out it!

Mr Daly's writing style is smooth and casual, and the book is loaded with common sense. His discussion of overhead allocation problems certainly makes the point that GAAP accounting practices lead to serious errors in cost accounting.

Full disclosure: I personally prefer an engineering model or standard cost approach, reality-checked with what might be called sampled-ABC: old fashioned time and motion studies.