Finance.

The framework

1. 01

   Draw the whole cascade, including the leaks that live in other accounts.

   List every deduction standing between your published price and the cash you keep, in the order it happens: the standard trade discount, the order-size break, the exception discount a salesperson negotiated to meet a competitor, then everything that falls off after the invoice — early-payment terms, extended terms you financed, annual volume rebates, marketing contributions, freight you absorbed, the credit note issued to end an argument. Marn and Rosiello found these hiding in plain sight: terms discounts buried in interest expense, freight lumped in with all transport, co-op advertising inside a company-wide promotions line. None of it shows up customer by customer until you put it there.

2. 02

   The invoice is a record of what you asked for.

   Whatever your systems report as price today is almost certainly invoice price, and invoice price is a record of what you asked for. Pocket price — what survives the whole cascade — is what you got, and it's the only figure that should decide whether a product, a customer or a deal is attractive. Recast every price report on that base: margin by account, discount authority, the commission you pay for winning the work. The temptation is to leave out the leaks that are awkward to allocate, and a partial waterfall is worse than none, because it hands everybody a defensible reason to do nothing.

3. 03

   Plot the band, then work both tails.

   No product sells at one price. Plot the pocket price achieved on every transaction of a single line over a quarter and you get a band, and the band is almost always wider than anyone in the room expects; the spreads Marn and Rosiello examined ran from tens of per cent up to several multiples between the highest and lowest sale of the same item. Then look at who sits at the bottom. The assumption is that the biggest accounts pay least. The finding is often that the cheapest prices go to long-standing customers who've simply learned whom to telephone for one more concession.

4. 04

   Buyers don't weigh every leak the same way.

   The appliance manufacturer in the article found its retailers compared suppliers on invoice price minus the cash discount and largely ignored what came off afterwards, so it moved its annual volume bonus onto the invoice, gave away nothing extra, and same-store volume rose eleven per cent. Run that audit on your own cascade: which concessions does a buyer notice and argue about, and which are simply pocketed without comment? Fund the first and shrink the second, one element at a time. Discounting evenly across the whole waterfall spends real money in the places your customers stopped valuing years ago.