Pricing is the value creation lever that works on the customers a portfolio company already has, needs no capital, and reaches EBITDA inside the hold. We help operating partners measure it, capture it, and keep it through to exit.
Most value creation plans lean on levers with long payback: cost programs, add-on acquisitions, new markets. Pricing tends to appear as a line item with no owner. That is a mistake of arithmetic as much as strategy, because a price improvement on existing volume flows to EBITDA almost in full, and EBITDA is what the exit multiple is applied to.
Pricing power is the ability to raise or hold price without losing a disproportionate share of volume. Every company has some. The question for an operating partner is how much, where in the portfolio company it sits, and how much of it management is already using. In our experience it is rarely zero and rarely fully captured, but that is a hypothesis to test in the data, not a belief to put in a board deck.
The numbers below are an illustrative portfolio company, not a client. They show why a small movement in realized price matters more to the equity story than almost any other operating change of the same size.
Illustrative example. Revenue $150 million, EBITDA margin 15%, so EBITDA of $22.5 million. Contribution margin, revenue less variable costs, is 40%. Exit multiple assumed at 10x EBITDA.
| Scenario | Revenue effect | EBITDA effect | EBITDA change | Enterprise value at 10x |
|---|---|---|---|---|
| Realized price up 1%, volume unchanged | +$1.5M | +$1.5M | +6.7% | +$15.0M |
| Realized price up 2%, volume unchanged | +$3.0M | +$3.0M | +13.3% | +$30.0M |
| Realized price up 2%, volume down 2% | -$0.06M | +$1.74M | +7.7% | +$17.4M |
The first two rows are the headline case: price recovered on existing volume carries no additional cost, so it reaches EBITDA dollar for dollar. The third row is the honest case. Revenue ends slightly below where it started ($149.94 million), yet EBITDA still rises by $1.74 million, because the lost units also take away their variable costs. The 2% price rise on the 98% of volume that stays is worth $2.94 million; with a 40% contribution margin, the 2% of volume lost takes away $1.20 million of contribution.
Two lessons follow. First, the value is large enough that pricing deserves an owner and a target in the plan. Second, the volume response decides how much of it is real, which is why the work starts by measuring pricing power rather than assuming it.
Pricing power leaves traces in a company’s own records. The scorecard below is how we read them in the first weeks, before any price changes. Each signal is scored from one (weak) to three (strong); the pattern matters more than the total.
| Signal | How it is measured | Weak pricing power looks like | Strong pricing power looks like |
|---|---|---|---|
| Pass-through of past increases | Announced list increases compared with the change in net price on the same products | Less than half of the increase reached the invoice | Most of the increase held a year later |
| Discount dispersion | Spread of net price among customers of similar size buying similar products | Wide spread with no link to volume or cost to serve | Tight band that follows clear rules |
| Volume response to price | Loss rates and churn after the last increase, by segment | Losses concentrated where the increase was largest | Losses flat, or confined to low-margin accounts |
| Contract terms | Share of revenue under escalators, caps, or most-favored-customer clauses | Large share locked under caps or no escalator | Indexed or annual escalators on most contracts |
| Why deals are lost | Win and loss reasons in the CRM, checked against customer interviews | Price cited in most losses, and reps believe it | Losses mostly about fit, timing, or capability |
| Customer switching costs | Integration, retraining, qualification, or service dependency | Product is easily substituted | Changing supplier is costly or risky for the buyer |
| Decision ownership | Who can change list price and approve discounts | Anyone close to the deal | A named owner with defined authority |
A company that scores well on switching costs and poorly on pass-through and dispersion has pricing power it is not using, which is the most attractive profile in a portfolio. A company that scores poorly on volume response and switching costs needs its pricing work to focus on cost to serve and packaging rather than on price increases.
Before any price is raised, most portfolio companies are losing money they have already earned. There are two kinds of loss, and they are found in different places.
Revenue leakage is revenue the company is entitled to and does not collect. Typical sources: contractual price escalators that were never applied, services delivered and not billed, promotional prices that outlived the promotion, rebates paid on volume that did not qualify, and renewals processed at the old rate. It is found by reconciling contracts and price lists against invoices. More on the mechanics in our revenue leakage glossary entry.
Margin leakage is revenue that is billed correctly but at a margin below what the pricing intended. Typical sources: discounts granted beyond policy, free freight and expedited delivery, extended payment terms, and demanding accounts whose cost to serve is not reflected in their price. It is found by building a price waterfall from list price to pocket price and comparing it by customer, rep, and channel.
Revenue leakage is usually quicker to recover, because the entitlement already exists on paper. Margin leakage usually matters more over a hold period, because it compounds with every new deal written under the same habits.
The method is the same across a fund. Where the money is found, and what to pull first, depends on how the company sells.
| Company type | Where the lever usually sits | Data to pull first | Typical first action |
|---|---|---|---|
| Distribution | Discount discipline, rebates, freight and service concessions | Invoice lines by branch and rep, rebate accruals | Price floors by product role and a discount authority matrix |
| Manufacturing and industrial | Value-based pricing by segment and region, channel alignment, aftermarket and parts | Net price by distributor and end segment, list increase history | Differentiated prices where sensitivity is low; aligned distributor terms |
| Software and SaaS | Value metric, packaging, discounting at renewal, installed-base increases | ARR bridge by customer, discount at signature and renewal | Renewal pricing rules and a sequenced increase on the installed base |
| Business and professional services | Rate cards, scope creep, hourly versus value-based fees | Realized rate by client and service line, write-offs | Tiered service offers and a scope-change pricing rule |
After an add-on acquisition, one more lever appears: post-acquisition price harmonization. Two price lists, two discount cultures, and customers who buy from both entities create immediate leakage, and the same customer can end up on the lower of two prices by default. Harmonizing the lists, the terms, and the approval rules is usually one of the first pieces of pricing work after an add-on closes.
Acustrategy’s work for sponsors includes post-acquisition pricing optimization run as a 100-day plan. The sequence below is the shape it usually takes. Timing flexes with data quality and the size of the business; the order does not.
Days 1 to 14
Data request and extraction: invoice lines, price lists, contracts, rebate files, CRM deals
A data inventory, the gaps, and the first read of discount dispersion
Days 15 to 30
Revenue leakage checks against contracts; first price waterfall by channel
Leakage recovered or in recovery, with dollar values
Days 31 to 45
Pricing audit findings: pricing power scorecard, margin leakage by customer and rep, customer and sales interviews
A sized list of pricing opportunities, each with its risk
Days 46 to 60
Design: price floors and targets, discount authority, any structural changes, and the increase plan by segment
Decisions for approval, with the volume assumptions made explicit
Days 61 to 75
Pilots in selected branches, segments, or product lines; sales enablement for the pilot teams
Pilot results against a control group
Days 76 to 90
Rollout of the approved actions; governance roles, approval workflows, and the monthly pricing review
New rules live on the quote
Days 91 to 100
First KPI pack; handover to the named pricing owner
Price realization, compliance, and leakage tracked monthly from here
The 100 days do not deliver the full value. They deliver the evidence, the first recovered dollars, and the operating rhythm that captures the rest over the hold.
Revenue and EBITDA tell the board what happened. They do not tell it whether pricing is working, because both move with volume, mix, and cost. Price realization, the share of the intended price that is actually collected, isolates the pricing lever.
Where the company has no pricing function, PricePro© can run this reporting and the approval rules behind it as a managed service, so the discipline does not depend on a hire the company has not yet made.
A monthly pricing page in the board pack needs only five lines:
Pricing that works in one portfolio company tends to transfer to the next, because the diagnostic, the governance model, and the board metrics are the same. For a sponsor, that makes pricing discipline across portfolio companies a fund-level capability rather than a series of one-off projects.
It also matters at exit. A buyer’s diligence team will test the same things this page describes: whether past price increases held, how widely similar customers’ prices vary, how much growth came from price rather than volume, and whether anyone owns pricing decisions. A company that can show two or three years of realized increases, a tight discount band, and a documented governance model is presenting pricing excellence as an institutional capability, not as a management claim. That is easier to defend in a data room. What a buyer’s pricing tests look like from the other side is set out on our commercial due diligence page.
Pricing that raises EBITDA while damaging the company’s position does not help the exit. So the work stays tied to the portfolio company’s business strategy, brand positioning, and operating capabilities: a premium provider and a low-cost option need very different price architecture. Pricing that reflects the value different customer segments receive also changes the relationship with those customers. It reduces the volatility that comes from ad hoc deals, makes revenue more predictable, and supports lower churn and higher lifetime value. Those are the effects that show up in cash flow and in a buyer’s view of revenue quality, alongside the margin gain.
Tell us about the company and what the value creation plan expects from it, and we will show you how we would test the pricing lever in the first weeks.
Most engagements start with the sponsor, and the operating partner often stays involved throughout, but the contract usually sits with the portfolio company. That keeps management accountable for the outcome and the pricing owned inside the business.
With ranges, not points. The first read of dispersion and pass-through gives a directional range within the first weeks. The range narrows as leakage checks and interviews come in. We say which numbers are firm and which are directional every time they are reported.
By treating volume response as a measured risk: increases sized to each segment’s pricing power, pilots against a control group, timing matched to renewals, and loss rates watched where prices moved. The third row of the arithmetic above is the scenario we plan for.
That belief is common and worth testing rather than arguing. The scorecard usually shows whether it is true. Where it is, the work shifts to packaging, cost to serve, and leakage, which improve margin without asking customers to pay more for the same thing.
Usually not. The first company’s pricing model, governance, and board metrics become the template the add-ons are harmonized into. Waiting means each acquisition brings its own price list into a business that has no standard to absorb it.
Where pricing was tested before close, the diligence findings become the starting hypotheses for the 100 days, which saves the first month. Where it was not, the first 30 days above cover the same ground.
