Pricing Terms Glossary for Business Leaders

A time‑series method that models trends and patterns to forecast demand.

Average revenue per account (customer).

Average revenue per user in a given period.

Grouping customers by value or needs to tailor price and service.

Behavioral bias where people rely heavily on first information presented.

Annual Contract Value; value of a contract per year.

Annual Recurring Revenue; the yearly value of all active subscriptions/contracts.

Is a software that allows different applications to communicate and exchange data.

Who must approve certain discounts or deal levels.

Pick the right set of SKUs (Stock Keeping Unit) to maximize goals within space limits.

How often an add‑on is purchased with a base product.

Contracts renew automatically unless cancelled.

The uncommitted portion of a company’s inventory and planned supply that can be confidently used to fulfill new customer orders within a specified timeframe

Average revenue per closed deal.

The average net price a product sells for after discounts and rebates. A key benchmark in US pharmaceutical pricing.

Establishing a reference point (e.g., sales, costs, demand) to measure impact of pricing or promotional changes.

Expected sales without promotions or unusual events.

Base volume is the sales expected without a promotion. Incremental volume is the additional sales driven by the promotion.

Statistical updating of beliefs as new data arrives.

Applying behavioral economics (loss aversion, framing, decoy effects) to increase conversion and willingness to pay.

Special pricing offered to early users testing a product before full release.

In revenue management, the minimum value a booking or order must exceed to be accepted, based on the value of the remaining capacity.

Setting bid prices at the point where win probability and profit margin best balance.

The frequency at which billing occurs (monthly, quarterly, etc.)

A pricing approach where recommendations are generated by AI or algorithms without providing a clear explanation of how the price was determined.

In professional services, the average hourly billing rate across all roles and levels on a project or team.

Leading indicator comparing signed value to billed revenue.

Price breaks that lower the unit price as order quantity increases.

The price/volume combination where profit = 0; supports investment and markdown calls.

Discount applied when buying multiple items in a bundle.

Sell items together for one price (bundle) or split them apart to match different budgets.

How efficiently a company turns cash burn into growth.

The steps prospects take from awareness to purchase.

Roles involved in a B2B purchase decision.

Months needed to recover CAC (Customer Acquisition Cost) from gross margin.

A brand’s percentage of total sales in its category.

Forecasts that include causes like price, promo, and events.

The maximal allowable price in a market or contract.

Tension between channels (e.g., direct vs reseller) over price or margin.

Margin allocated per distribution channel.

Setting different prices by distribution channel, such as direct-to-consumer, wholesale, or e-commerce.

Survey‑based model that reveals value for features and price trade‑offs.

The rate at which customers leave or stay; directly impacts LTV and pricing power.

Statistical grouping of similar customers or products.

A discount given in exchange for committing to a set usage or spend level over a term.

Setting prices with reference to competitors’ prices to stay attractive while protecting profit.

Prices fixed for a customer by the terms of a contract.

The combination of pricing, sales, marketing, and customer management practices that improve profitable revenue growth.

Software that standardizes quoting with rules and approvals so reps price deals correctly.

A market research method that estimates part-worth utilities and WTP (Willingness to Pay) by testing attribute/price trade-offs; core to price pack architecture and offer design.

Optimization technique with constraints (e.g. capacity, rules).

Revenue minus variable costs; used for pricing and mix decisions.

Profit after direct variable cost.

Profit after direct channel cost.

Profit contribution on a per unit basis (revenue minus variable costs).

The direct cost associated with generating revenue.

Price elasticity of demand in the digital advertising context, where changes in the CPM (price) affect the number of impressions (demand).

The direct costs incurred in producing or purchasing the goods that a company sells during a specific period.

A pricing grid that sets prices as cost plus a margin, with the margin varying by customer, product, or quantity.

Add a markup to your cost. Simple to run, but can miss higher prices customers would happily pay.

All costs to fulfill and support a customer/order after gross margin.

Joint marketing funded by supplier and retailer.

When the price of one item changes, demand for related items moves too (substitutes, complements). no changes for unrelated goods.

Hold‑out testing to check model accuracy on unseen data.

Percentage of customers who buy related products.

Average sales and marketing cost to win a customer.

Total profit expected from a customer over the relationship.

Loss in economic efficiency from suboptimal pricing or taxes

Team that reviews and approves non‑standard deals.

An analytics framework to separate revenue variance into price effect, volume effect, and mix.

Offering a third option to steer customers toward a target option.

Cash collected for goods/services not yet delivered.

Estimated demand based on history, seasonality, and drivers like price.

Predicting future sales using time-series, causal, and ML models; inputs to capacity, inventory, and pricing.

Using near‑real‑time signals to adjust short‑term forecasts.

Business model where brands sell their products directly to their end customers online, through their own website/stores, bypassing traditional intermediaries.

Lowering prices to stimulate demand or close deals.

When several layers in a value chain, such as a manufacturer and a distributor, each add a markup, leading to higher end-customer prices and lower demand.

Value from the dual problem in optimization, often shadow prices.

Automatically adjust prices with demand, inventory, or competition.

Dynamic pricing software is a system or tool that automates the collection and analysis of pricing data, such as demand signals, competitor prices, and cost changes, and applies pricing rules in real time. It allows businesses to execute a dynamic pricing strategy at scale, without manually recalculating prices across products or markets. Effective dynamic pricing software should support a company’s broader pricing goals rather than automate price changes on its own.

A dynamic pricing strategy is an approach to setting prices that adjusts in real time based on factors like demand, costs, competitor pricing, and market conditions, rather than relying on fixed, static prices. Common types include time-based pricing, demand-based pricing, and value-based pricing. The right dynamic pricing strategy depends on a business’s goals, its ability to implement pricing changes quickly, and the pricing indicators it tracks, such as costs, market demand, and competitor prices.

EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization) as a percent of revenue.

Earnings Before Interest, Taxes, Depreciation, and Amortization; financial metric used to measure a company’s operating performance.

Statistical estimation of demand response to price.

Statistical estimation of price and promo elasticities (and cross-elasticities) to simulate scenarios and price ladders.

Elasticity of demand is a measure of how sensitive the quantity demanded of a good is to a change in its price. A high value means buyers respond strongly to price moves. A low value means demand holds steady even when price changes

Acquisition price divided by a financial metric.

The regular shelf price of a product when it is not on promotion.

Pricing strategy where retailers maintain consistently low prices on products over a long period, eliminating the need for frequent sales or discounts.

EDLP (Everyday Low Price) marketing is a retail strategy offering consistently low prices on products, avoiding frequent deep discounts or sales, to build customer trust and loyalty through predictability, as famously used by Walmart. This approach requires efficient supply chains and lower marketing costs, focusing on high sales volume and strong supplier relationships rather than elaborate sales promotions, appealing to consumers valuing taste and consistency over quality-focused “High-Low” deals.

Expected sale multiple at exit.

AI techniques that make pricing recommendations understandable by showing the factors that influenced the decision.

Making sure pricing aligns with competition law, anti-discrimination rules, and contractual obligations.

In airlines and hotels, offering price tiers with different conditions to balance capacity utilization and revenue.

A pricing arrangement where the provider delivers a defined scope of work for a fixed price, regardless of hours spent.

A short, limited-time discount event designed to drive demand.

Effect of currency movement on revenue or margin.

Growth after removing currency effects.

Shows which inputs matter most to the prediction.

Percent of demand fulfilled immediately from stock.

The minimal price below which a product cannot go.

A commercial term that defines rights, obligations, or pricing protections.

Referring to the process of converting one country’s currency into another and the global market where these conversions occur.

Agreement on who pays freight and how it’s billed.

A direct-elicitation technique asking purchase intent at different prices to model demand curves and optimal price points.

Cumulative version of lift; how much signal is captured.

A pricing arrangement where the provider is paid a share of the measurable gains it delivers to the client, such as cost savings or revenue growth.

Pricing strategies considering competitive responses.

A clear ladder of feature/price tiers.

Tiered packages aligned to different willingness to pay.

Revenue minus cost of goods sold (COGS), divided by revenue. Shows product profitability before overhead costs.

The percentage of revenue kept from existing customers over a period, excluding expansion revenue.

In pharmaceuticals, the deductions from list price, such as rebates, chargebacks, and fees, that arrive at net revenue.

Pricing based on the value of a product’s individual attributes, such as features or quality.

Use financial instruments to offset commodity or Foreign Exchange (FX) risk.

Forecast at multiple levels (SKU, category, total) coherently.

Businesses set high initial prices for products and then periodically reduce them through sales, promotions, and discounts to attract customers, create excitement, and drive sales.

Exponential smoothing method for level, trend, and seasonality.

A pricing plan that combines seat-based and usage-based pricing.

Description of the best‑fit customer type.

 International rules defining delivery responsibility and risk.

Automatic price adjustment using an external index.

Index-based pricing ties the price of a product, service, or contract to a published, objective external benchmark or market index rather than a rigid fixed rate.

Pricing a drug differently depending on the disease or condition it is used to treat.

Setting or negotiating a drug’s price using its prices in other countries as benchmarks.

Calculate stock targets that hit service goals at lowest cost.

Demand function with constant elasticity over price.

Pre‑combined Stock Keeping Unit (SKU) sold together.

Used by shoppers to compare prices.

Products shoppers use to compare prices between stores, so their prices have an outsized effect on price perception.

Start small with a customer and grow via expansion.

Time from order to delivery.

Systematic review to find and close revenue/price leaks.

Systematic review to find and close revenue/price leaks.

Keeping existing customers on older pricing after a price change.

Chart of model’s ability to capture positives vs random.

How products are structured across features and prices.

A pricing structure that moves from list price, to discounts, to net price.

Public/reference price before any discounts or adjustments.

Behavioral economics concept: losses loom larger than gains.

Mean Absolute Error; average absolute difference between actual and forecast.

The price a manufacturer recommends retailers sell its product for.

Mean Absolute Percentage Error; average percent error of a forecast.

Initiatives to increase profit margins through pricing, cost reduction, or mix optimization.

Bridge showing how margin evolves through deductions and costs.

A planned price reduction to sell through inventory while protecting as much margin as possible.

The schedule of markdown steps.

Plan markdowns to clear inventory while protecting margin.

The volume available to buy or sell at different price levels in a market.

Dividing customers into distinct groups for targeted pricing.

A manual change to a system-calculated price from a price matrix.

Friction or cost of changing prices (e.g. updating catalogs).

Fine‑grained segmentation using multiple attributes.

Set by a manufacturer or brand that determines the lowest price a retailer can advertise a specific product

Changes in product, channel, or customer composition that affect average price and margins independent of list price.

Deciding which products or services to emphasize and how to structure offerings to improve overall margin.

Shift sales mix toward higher‑margin items.

Optimization with yes/no or integer decisions (e.g., pick a price tier).

The plan for how a product’s value becomes revenue, including tiers, usage meters, bundles, and commercial policies aligned to target customers.

Monthly Recurring Revenue; recurring revenue recognized per month.

Customer receives the best price given to any buyer.

A discount for buying multiple products.

Optimization across multiple periods (intertemporal).

A custom discount agreed between buyer and seller during contract negotiations.

Price after all on‑invoice discounts or allowances.

The price after all discounts, rebates, and allowances are deducted; the fully net price on a transaction.

How much of list/reference price is actually captured after all leakage.

Revenue after returns, discounts, and allowances.

Revenue from existing customers after churn, downgrades, and expansions; links pricing to customer success.

Offer predicted to be most relevant for a given customer.

Discount taken directly on the invoice.

Unified customer experience across online and offline channels.

Pricing that stays consistent and profitable across stores, websites, and marketplaces without confusing customers.

A broad, inclusive online platform where a diverse range of sellers offer their ad inventory to any interested buyers through automated, real-time bidding auctions.

Operating income as a percent of revenue.

Mathematical solvers (linear/nonlinear, stochastic, reinforcement learning) that recommend profit-maximizing prices subject to constraints.

Value from preserving flexibility (e.g. waiting to sell).

Growth excluding acquisitions/divestitures and FX.

A fee that is paid when agreed outcomes or results are achieved.

Spot and treat abnormal data points that distort analysis.

Fees for usage beyond the plan allowance.

Regression leveraging panel (time + unit) structure.

The share of a cost increase that a company successfully passes on to customers through price.

Adjusting prices along the value chain to reflect input cost changes, such as raw materials or currency movements.

A usage model where customers pay per unit consumed, with no upfront commitment.

Walk from previous to current results explaining drivers like price, volume, mix, FX.

The percentage of a potential market or customer base that has bought a product.

Price increase needed to offset a change in cost while keeping margin constant.

Contract term requiring equal or better price than others.

Time needed for profits to recover an investment.

When invoices must be paid (e.g., Net 30).

Intro price set low to gain share quickly.

Short profile describing goals and needs of a buyer type.

Charge per user or seat.

Qualified pipeline divided by bookings target for a period.

What you actually collect after all discounts, promos, rebates, and fees.

Net price minus post‑invoice items like rebates or freight allowances. Learn more.

A lower price given for paying in advance.

Observed spread of realized prices for comparable items.

Internal/external messaging for price changes.

The allowed price range by segment/channel/region.

An authorized discount that departs from the standard price, often for a specific deal or customer.

Variation in prices for the same product across sellers or markets.

How much demand changes when price changes (e.g., −1.5 means demand falls 1.5% for a 1% price rise).

High price elasticity means demand changes a lot when price changes a little. It is measured by the elasticity of demand formula: percent change in quantity demanded divided by percent change in price. If the result is greater than 1, the product is considered elastic. Understanding this helps businesses predict consumer reactions and set prices that match market responsiveness.

A pricing concept or policy that affects how prices are set or realized.

An approval for a price outside standard pricing policy.

Rules or conditions that let a company charge different prices to different customer groups based on their willingness to pay, such as student discounts, volume thresholds, channel, or purchase timing.

The difference between two prices, such as a brand’s price and a private label or competitor price.

Honoring old pricing for existing customers after prices change.

Rules that limit discounts and guide approvals.

A pricing concept or policy that affects how prices are set or realized.

Rolling new prices through systems and channels.

Best practices in structuring and delivering price increase messages to minimize churn/attrition.

Relative price vs a benchmark or market basket; used to balance value perception and profitability.

Price or margin lost through discounts, rebates, errors, or terms.

Setting prices in local currencies with local rounding rules, rather than converting at the exchange rate.

Retailer promise to match a competitor’s price.

A grid of prices by customer segment, product, and sometimes quantity.

Change driven by different price points/tiers gaining share.

A rule that rounds calculated prices to clean endings, such as .99 or .00.

Use data and rules to recommend prices that hit goals.

The strategic design of product sizes, package formats, and price points to maximize customer value, profitability, and market coverage.

Keeping the same price across channels or matching competitor prices to stay credible. Learn more.

A commonly accepted price level in the market that consumers expect or accept.

The percentage of list price that companies actually capture after discounts, rebates, and negotiations.

System that suggests price points using data and rules.

Tendency of prices to adjust slowly due to costs, contracts, or norms

Index of how responsive a segment is to price changes.

“What-if” modeling of price, promo, mix, and cost changes to forecast revenue and margin outcomes.

Price skimming is a pricing strategy where a company charges the highest possible initial price for a new, innovative product and gradually lowers it over time. This allows businesses to maximize short-term profits by targeting “early adopters” who are willing to pay a premium to be the first to own the item.

Running controlled price experiments, online or in store, to measure the effect on volume, margin, and price elasticity.

In private equity, a business case for raising prices to increase margin and value.

Competitive reduction in prices leading to margin erosion

Step‑by‑step view from list price to pocket price and margin.

Balance between higher price and potential volume loss to hit targets.

Structuring sizes, formats, and price points to match Willingness To Pay and channel missions; e.g. foundational in Consumer Packaged Goods

Assessing pricing strength and risk in an M&A or private equity deal to size the value-creation upside.

Simple rules, guardrails, and approvals that control discounting and protect margin.

A set of customers or products grouped together so they share the same pricing rules, discounts, or price levels.

The structure a company uses to set and charge prices, such as cost-plus, value-based, subscription, usage-based, or tiered pricing. Tesla example.

The organization, processes, and tools a company uses to set and manage pricing.

A program management office that coordinates pricing initiatives across a company.

The plan for how a company sets and updates prices to win customers and improve margin without hurting demand.

Distributor’s price adjustment methodology.

The price difference between a branded product and the retailer’s private label equivalent.

An invite-only, real-time bidding (RTB) auction where publishers offer premium digital ad inventory to a select group of advertisers under agreed-upon terms.

Revenue as if recent acquisitions/disposals were included all period.

How deep the discount is during a promotion.

How often promotions run for a product or category.

The relationship between discount depth and incremental volume, used to find the most profitable promotion depth. Also called a lift curve in promotion analysis.

Profit gained from a promotion divided by the cost of running it.

The true gain from a promotion after subtracting baseline sales and stockpiling; key to trade ROI.

A sudden drop in volume after a promotion ends.

Likelihood that a target will purchase soon.

Likelihood a customer will leave soon.

Forecasting model that handles seasonality and holidays.

Validate that earnings are accurate and sustainable.

Quote validity is the specific time window during which a seller or service provider agrees to honor the prices, terms, and conditions laid out in a business quotation

Segmenting customers by recency, purchase frequency, and spend.

Root Mean Squared Error; emphasizes larger errors.

Pricing that steps up over a contract term as usage or value grows.

A list of standard billing rates by role or service.

In professional services, the extent to which rates actually billed match standard rates.

Post‑purchase credit or payment tied to behavior (e.g., volume, growth).

Recovery of rebate payments from a customer or channel partner when the agreed conditions, such as volume targets, are not met.

The mental benchmark price customers expect; anchoring and decoys can shift perceived value.

Pricing based on the value of the overall customer relationship, such as total spend across products, rather than on each product individually.

A discount given to resellers on products they resell.

A prepaid or recurring fee that secures access to a provider’s services over a period.

Performance measure showing how much profit (or value) is gained compared to the cost of the investment.

A structured approach to growing sales and profit using pricing, promotions, product mix, and pack sizes, often with support from a pricing consulting partner. Widely used in consumer goods.

Revenue lost due to process errors, disputes, or policy gaps.

Ongoing support where a specialist team, such as Revenue Management Labs, monitors, tests, and tunes pricing and promotions each month.

Share of revenue by product, channel, or segment.

Find the best mix of price and demand to maximize revenue.

Projected annual revenue based on the current period.

SaaS health rule: growth rate + profit margin ≈ 40% or more.

EBITDA normalized for steady‑state operations.

Reduce or replace low‑value SKUs (Stock Keeping Unit) to improve performance.

Buffer inventory to meet the service level under uncertainty.

Average time from first qualified meeting to closed won.

Training and content that help sales sell value and price.

Build ‘what‑if’ pricing cases to assess impact.

Regular seasonal pattern that lifts or lowers demand.

Increase in purchased seats/licenses over time.

Grouping customers based on shared characteristics such as industry, behavior, or willingness to pay.

Test how results change when a key number (price, cost, volume) moves.

Probability of meeting demand without stocking out.

Implied value of relaxing a constraint (e.g. resource limit) in optimization

Model of what an item should cost based on inputs and process.

Start high to capture early adopters, then lower later.

A formal document that defines the specific deliverables, scope, timelines, responsibilities, and pricing for a given engagement under a broader agreement.

Psychological effect when price seems unusually high.

Optimization under uncertainty (e.g. demand distributions).

A unique identifier used to track individual products in inventory, typically combining attributes such as brand, style, size, and color.

Inventory runs out and sales are lost or delayed.

Agreements that give special prices for specific customers, projects, or deals.

Lowering price in steps as competition increases or volume grows.

Additional fees charged on top of base price.

Temporarily raising prices when demand is very high.

Portion of value between willingness to pay and cost captured by seller

Sustainable margin performance is a company’s ability to consistently maintain or grow its profitability ratios over the long term, rather than achieving high margins through short-term or one-off measures.

The desired or goal price point set by a company to achieve margins or market positioning.

Government-imposed tax on imported or exported goods, designed to regulate trade, protect domestic industries, or generate revenue.

Pricing that reflects import and export duties, currency, and trade policy. Essential for global manufacturers and distributors.

A short-term price reduction on the shelf.

Prices set through competitive bidding, such as for hospital or government supply contracts.

Relative forecast error compared to a naive benchmark.

Pricing where different levels or tiers are offered (e.g. Silver / Gold / Platinum)

Rebate rate that increases at higher purchase levels.

A pricing arrangement where the client pays for actual hours worked and expenses incurred.

Concept that value (or utility) decreases over time (e.g. for perishable service).

Forecasting methods that use time‑ordered data.

Total Contract Value over the full term, including one‑time fees.

Money paid to retailers for promotions and distribution support.

Planned steps that move buyers to higher‑value offers.

Setting prices for goods and services exchanged between entities within the same organization, often for tax compliance and profitability analysis.

Trials that become paid customers.

Periodic reconciliation of contracted vs. actual usage, billing the difference.

Fixed fee plus a variable usage fee.

Customer-level profitability metrics (Average Revenue per User, Lifetime Value, Customer Acquisition Cost) to guide monetization strategy.

Percentage of customers who upgrade or purchase add-ons

Monetization tied to consumption (API calls, seats, GB); often paired with tiered pricing and overage.

The process of extracting economic value from each stage of the value chain through pricing and margin management.

Structured plan to grow EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization) and value post‑deal.

Clear explanation of value that justifies price.

A structured way to explain the value of a product or service to justify its price, often used by sales teams.

Pricing based on the value customers get, not just costs. Done right, it lifts revenue and price realization.

Survey asking four price questions to find an acceptable price range.

Price Sensitivity Meter collecting acceptable/too-cheap/too-expensive thresholds to define perceived value bands.

Variable pricing is a strategy where the cost of a product or service changes based on specific factors like demand, customer type, or purchase timing.

Offering different versions of a product at different price and feature levels.

Total units sold in a period.

An additional discount or rebate paid when a volume target is exceeded.

Change in performance caused by a shift in sales composition.

Bridge that explains revenue or margin change by volume, mix, and price.

Weighted Mean Absolute Percentage Error (MAPE) (110); errors weighted by volume.

The price below which a customer leaves (reservation price).

Measurement of each step from list to pocket price.

The automated process of extracting data and content from websites, transforming it into a structured format like a spreadsheet

Tool that lets you play out scenarios and see results.

The most a customer will pay; measured with surveys or experiments to find optimal price points.

Share of opportunities won out of total qualified opportunities.

The systematic process of analyzing why sales deals are won or lost to understand the specific reasons, especially regarding pricing, that influence buyers’ decisions

Method of maximizing revenue by controlling inventory and price over time.

Setting different prices for different geographic zones.

Symmetric Mean Absolute Percentage Error (MAPE); balances over/under‑forecasting.