February 24, 2004   |   Demir Barlas — Metreo, a price optimization software vendor, today stated that as much as $200 million of so-called untapped margin is waiting to be exploited by between 40 and 50 of its own customers and prospects.

The notion of untapped margin relates to pricing optimization in the broadest sense, with specific factors like win rates, sales execution against business plans, price delivery systems, response times, and segmentation pricing coming into play. For a company to tap into margin, it has to first decide how (for example, by dropping low-volume, low-margin customers, or by concentrating on a specific geography) and then crunch the data.

Paul Nagy, VP of product marketing for Metreo, describes a specific case, that of Metreo customer Essex. "They had no way to determine if the deal was profitable or not at quote time," he says. "Some of the business they took in was unprofitable." For example, Essex wasn't looking at the overall cost of sales (including customer compliance with contracts and the cost of freight) and, by focusing only the price of commodities in the marketplace, wasn't getting the whole picture.

Nagy has a picturesque metaphor for what's at stake for companies. "Where are the bloodsuckers (low price, low volume) and where are the suckers (high price for low volume)?" he asks. Metreo crunches historical data -- including historical data and culled from other enterprise systems -- to help its customers understand where the best pricing opportunities may be.

The $200 million figure, says Nagy, is limited to companies (down to division level) using Metreo as well as a mix of prospects. It's a marketing tool, admittedly, but it does highlight one way in which e-business is more important than before. "It was fine when people were doubling their profits every quarter," Nagy concludes. "But after the economy came crashing down, how do you make more money on every product selling today?"