Pocket Price Waterfall: A Customer-Level View of Where Your Money Actually Goes

Pocket‑price realization (PPR) is the share of list price that survives the cascade: pocket price divided by list price. The blended customer base keeps $2.16 of every $2.80, a realization of 77.1 percent.

The mirror identity

Realization and the G2N rate are the same measurement read from opposite ends of one ruler. When both are expressed as a share of list price:

Realization = 100 minus the G2N rate.

A 22.9% G2N rate IS a 77.1% realization rate. Because the two are one number, this course derives the realization bands directly from the G2N bands rather than declaring a second set:

One set of boundaries, two directions of reading, and the two can never drift apart. The 70 percent line is the floor worth memorizing: keep at least 70 percent of list and the read is HEALTHY.

The LEAN caveat

Above 85 percent kept, the band reads LEAN, and the read is a question rather than a medal. Terms that light usually mean one of three things: a genuinely premium relationship, a channel that needs little support, or under‑investment that a competitor will notice before you do. OnlineFirst's 83 percent sits near that line for a structural reason: e‑commerce needs light standing terms but heavy returns allowances, so its lightness is real and earned. Confirm which story applies before celebrating.

The drift nobody decides

The sharpest fact about realization is how it moves: down, slowly, without decisions. Every "small" concession, every promo that runs a little deeper than planned, every threshold set a little too low nudges it. The pattern where nobody actively defends the number is a loss of roughly half a point a year. This customer base's history reads 79.3, 78.9, 78.4, 77.9, 77.5 over five years, and the live sandbox appends today's 77.1. Nobody decided that. It is what trade terms do when nobody owns the number, and it is why the erosion chart is the only place in this module where the lesson shows you time.

Realization turns into money through one small formula, and the answer is the single most useful number in this lesson.

The identity

Where pocket price is what survives every trade term and list price is Anchor 1. On the blend: $2.1588 / $2.80 = 77.1 percent.

One point, in dollars

At these defaults: 0.01 x $2.80 x 3,600,000 = $100,800 a year. That is the number the sandbox prints under the annual table, and the number to hold in your head whenever a negotiation trades points: every point of realization this customer base wins or loses is about $101K a year, for every year the terms stay where they land.

Drop‑through: why a realization point beats a list point

A recovered realization point and a 1 percent list increase add the same revenue before anyone reacts. They stop being equal the moment someone does. A list point has to survive the shopper: part returns as lost volume, part invites a competitor to follow. A realization point, won by trimming a term the shopper never sees, carries no demand risk, and because the cost base is unchanged, 80 to 100 percent of it drops through to operating profit: $81K to $101K of the $100.8K lands.

The founding study of transaction pricing put the same comparison at P&L scale: for a company with average economics, a 1 percent price improvement is worth about 11.1 percent of operating profit. A realization point is that same lever with the elasticity risk removed, which is why the disciplined sequence runs realization first, list price second.

The history, priced

The erosion chart's history reads 79.3 percent five years ago, then 78.9, 78.4, 77.9, 77.5, and the live read today at 77.1. Small steps, none bigger than half a point, none of them a decision anyone remembers making.

The run‑rate cost

The customer base has lost 2.2 points of realization across the window. At today's volume, each point is $100,800 a year, so it now hands over about $221,760 a year more than it would at the five‑years‑ago terms, at identical volume and list price. That is the run‑rate cost, and it recurs every year the terms stay where they are.

The cumulative cost

The run‑rate understates the full bill, because every year along the way also ran below the starting terms. Adding the yearly gaps (0.4 + 0.9 + 1.4 + 1.8 + 2.2 points across the five years) gives 6.7 point‑years, which at today's volume prices the whole drift at roughly $675K of margin handed over across the window. No single year's gap looked worth a meeting.

What defense would have cost

Holding the line rarely means refusing every concession; it means trading each one for a counterpart of equal life. A customer base that gave the same 2.2 points but received measurable counterparts (growth triggers rebased annually, execution‑verified display, data feeds that arrive) would show the same realization line and a very different P&L, because part of that spend would be earning volume and the withholdable share would return in the bad years. The drift is what concessions do when nobody prices them.

Realization erodes when it is everyone's metric and nobody's job. Four habits put an owner behind it.

Read it per customer before you read the average

The blended 77.1 percent hides the spread that matters: MegaMart keeps you at 75.1, ValuePlus at 70.5, OnlineFirst at 83.0. ValuePlus sits half a point above the HEALTHY floor, which means one ordinary concession, half a point, takes your second‑largest customer into CONCERNING. Reading the average first is how that surprise ships.

Put the one‑point value in every negotiation brief

A negotiator who walks in knowing "one point on this account is $24K a year, and $101K on the whole customer base" trades differently from one who knows "our terms are about 23 percent". The per‑point dollar converts an abstract percentage into the thing actually being traded. The sandbox's annual table exists to make that conversion automatic.

Defend the floor, not the decimal

The discipline is not to freeze every term; it is to hold the line that matters. Set the account‑level floor (the walk‑away realization from the JBP Dual Ledger card), flag any proposal that crosses it, and let everything above the floor be traded deliberately for counterparts. A customer base where every concession is priced and traded is healthy even when realization moves; one where realization moves without anyone pricing it is the drift pattern.

Review the trend annually, with the erosion chart on the wall

One meeting a year, one chart: realization by year, blended and per‑customer, with the half‑point‑a‑year benchmark drawn on. If the blended read lost ground, name the terms that did it and decide, explicitly, whether each was bought or leaked. The chart turns a silent drift into a listed decision, and that is most of the cure.