Manufacturing pricing strategies: Best practices to maximize margin

A 1% price change can drive up to an 8% swing in operating profit. Yet too often, manufacturers leave that kind of leverage on the table. Between rising input costs, unstable supply chains and increased competition, it’s tempting to stick with outdated pricing methods or react to short-term pressures.

But pricing is one of the few financial levers you can fully control. When applied with purpose and discipline, it becomes a direct path to stronger margins and sustainable profitability. Pricing based on accurate cost visibility, clear customer value and informed market dynamics puts you in control. And control is something every manufacturer needs more of right now.

Let’s explore pricing best practices that help manufacturers strengthen margin and set a smarter course forward.

Why pricing strategy matters in manufacturing

If you’re still setting prices with a simple markup or by copying what competitors are doing, you’re likely leaving margin behind. According to an April 2024 report from McKinsey, pricing is the most effective lever to boost profitability in manufacturing. The study showed that companies using strategic pricing methods saw profit gains 50% higher than those relying on cost cuts or volume growth alone.

The Professional Pricing Society echoes this in its research. A 1% price increase, assuming volume stays the same, can improve operating profit by 11.1% in a typical manufacturing business. That level of impact is difficult to match through operational efficiencies alone.

Even so, many manufacturers use outdated pricing models that don’t reflect current material costs, labor changes or customer willingness to pay. And with raw material costs still fluctuating and supply chains facing ongoing disruptions, relying on cost-plus pricing alone is risky.

Strategic pricing is no longer just a sales conversation. It’s a controllership conversation. And it starts with understanding your full cost structure, the value your product delivers and the complexity of your channels.

Fundamentals to get right: cost visibility, customer value, channel complexity

Pricing isn’t just a number on a quote sheet. It’s a strategic tool that requires accurate financial data, market understanding and alignment across your organization. Before applying advanced pricing models, make sure these fundamentals are in place.

Cost clarity comes first.

Many manufacturers think they know their costs, but few have real-time, activity-based visibility into what it takes to produce each product or configuration. If you’re still relying on standard costs that don’t reflect current material inputs, labor variability or overhead allocations, you’re pricing in the dark. Your controllership partner should support this effort through tools like cost modeling and variance analysis.

Know your customer segments.

Not every customer is driven by price alone. Some prioritize speed, quality, volume capacity or custom solutions. Understanding what your customers value most gives you room to price based on benefits delivered, not just unit cost. Manufacturers that match price sensitivity with product positioning can avoid unnecessary discounting and build trust.

Account for channel complexity.

Selling through distributors, OEMs, ecommerce or direct sales creates pricing variation that must be managed carefully. Each channel has its own expectations, cost to serve and margin potential. A centralized pricing framework with regional or channel-specific adjustments helps you maintain control while staying competitive.

Best practice pricing models: cost-plus, value-based, dynamic, tiered

With the basics in place, you can build pricing models that fit your operation and customer base. Here are several that manufacturing companies often use — sometimes in combination.

Cost-plus pricing

This is the most common model and the easiest to manage. You calculate your total cost and add a fixed markup percentage. While simple, it doesn’t account for customer value or competitive positioning. It also falls short when costs fluctuate quickly, leaving you with delayed or inaccurate pricing.

Value-based pricing

This model sets price based on the perceived value to the customer, rather than just cost. For example, if a product improves efficiency or reduces waste for the end user, it might justify a higher price. Manufacturers using this model often focus on products with strong differentiation or technical advantages.

Dynamic pricing

This approach adjusts prices based on real-time demand, capacity or supply availability. For example, manufacturers with limited production windows or seasonal inputs can use dynamic pricing to reflect actual conditions. While powerful, this model requires sophisticated analytics and sales coordination.

Tiered pricing or bundle models

Offering multiple price points for product configurations or service levels lets you meet a wider range of customer needs. It can also reduce discounting pressure. A good example is offering base models, mid-tier packages and premium versions with added value. This model works well in capital equipment, packaging and electronics manufacturing.

When adopting a new pricing model, be sure it aligns with your systems and team capabilities. Even the best strategy will fail if your ERP, CRM or sales team can’t execute it accurately.

Implementing pricing governance and analytics in manufacturing operations

Setting the right price is only part of the equation. The other part is making sure your team can execute pricing strategies consistently and confidently across every quote, every order and every channel. That’s where pricing governance and analytics come in.

Pricing governance refers to the systems, processes and rules that guide how prices are set, approved and updated. Without it, even the most strategic pricing model can fall apart. This is especially true for manufacturers selling into different geographies or through a combination of direct and distributor channels.

Start by defining clear ownership of pricing decisions. In many cases, this sits with the CFO or controller, but it should involve sales, operations and product management too. Everyone needs to be aligned on targets, escalation procedures and what data is required to make informed pricing decisions.

Second, formalize your approval workflow. For example, establish guardrails around discount thresholds, volume pricing and margin minimums. Build these into your ERP or CPQ (configure-price-quote) system so pricing is not left to guesswork or relationship-based negotiation.

On the analytics side, manufacturers are increasingly adopting pricing dashboards and tools that track performance over time. Metrics like realized price vs. list price, margin by product line, win rates by pricing tier and customer-level profitability help you identify patterns and correct issues early.

At James Moore, we support manufacturers with custom reporting and financial analytics tools that surface the data you need to support your pricing decisions. This allows your pricing process to move from reactive to proactive and from anecdotal to data driven.

Special considerations for manufacturing margins: supply chain volatility, customization and channel strategy

While pricing is always important, manufacturers face unique challenges that require additional planning and flexibility. Your pricing strategy needs to account for margin pressures that are specific to the manufacturing environment.

Raw material volatility is a top concern. Prices for inputs like metals, plastics, chemicals and lumber can shift quickly. If you don’t have a pricing strategy that adjusts with these fluctuations, you risk eroding margin faster than you can respond. Consider adding material cost escalators or revisiting pricing quarterly instead of annually.

Customization and engineering complexity can also cause margin leakage. Custom jobs often require more engineering hours, project management oversight and extended timelines. If your pricing model doesn’t reflect that, you may win more business at the expense of profitability. Consider pricing configured products separately from standard ones and building in charges for special engineering or design time.

Channel strategy adds another layer of complexity. Selling through a distributor requires shared margin, marketing costs and different levels of control over pricing. Manufacturers should analyze the profitability of each channel and ensure pricing accounts for the cost to serve. For example, a high-volume, low-touch ecommerce sale should not be priced the same way as a high-service, consultative distributor sale.

In addition, your pricing must remain competitive while protecting margin. That requires access to industry benchmarks, competitor pricing intelligence and the ability to segment customers based on value, not just volume. Tools like competitive pricing audits or third-party market data from resources such as IBISWorld or Deloitte’s annual manufacturing outlook reports can help inform your approach.

Maximize your margins with strategic manufacturing pricing

Pricing is one of the most powerful tools manufacturers have to protect profit and fuel growth. But it only works when it’s based on real cost data, clear customer segmentation and proactive financial leadership. With rising input costs, channel complexity and increasing customer demands, pricing cannot be treated as an afterthought.

Instead of relying on outdated cost-plus formulas or gut instinct, manufacturers should take a deliberate approach to pricing. That means investing in visibility, setting up governance and using the right pricing model for each part of the business.

At James Moore, we work alongside manufacturers to build controllership systems that support smarter pricing, better forecasting and stronger financial results. Whether you need help with cost modeling, pricing analytics or outsourced financial leadership, we can help you put structure behind your strategy.

Contact a James Moore professional to find out how we can help your manufacturing business create pricing strategies that drive real results.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.