Price Waterfall Explained:
How Pricing Leakage Destroys EBITDA

Pricing leakage is one of the fastest ways EBITDA is destroyed — and one of the fastest to recover. The price waterfall shows exactly where the margin goes between your invoice price and the cash you actually receive.

What Is a Price Waterfall?

A price waterfall traces the journey of revenue from list price to net realised margin. Each step represents a deduction — a discount, rebate, freight concession, or credit note — that reduces the margin you keep. In most industrial businesses, the gap between list price and net price received is 15–30% of revenue.

Use the Quantify margin leakage to quantify it in your business.

Why It Matters for EBITDA

Every dollar of pricing leakage falls directly out of EBITDA. There is no cost of goods attached. At a 7× EBITDA multiple, recovering 1% of revenue in pricing discipline is worth 7% of enterprise value.

The 6 Most Common Leakage Points

1. Invoice discounts — negotiated off list price, often without P&L visibility
2. Volume rebates — retrospective rebates rarely tracked against individual transactions
3. Freight absorption — freight costs absorbed without being priced into the transaction
4. Early payment terms — cash discounts that reduce effective margin invisibly
5. Credit notes — returns and adjustments not tracked as pricing decisions
6. Promotional pricing — time-limited reductions that become permanent

How to Fix It

1. Build the price waterfall at the customer and product level — not just in aggregate
2. Establish a pricing exception process — any discount above a threshold requires approval. This alone reduces leakage by 30–50% within 90 days.
3. Report pricing realisation weekly as a commercial metric, not a finance report
4. Hold the sales team accountable — this requires CEO-level commitment

In every business I have operated, pricing was the fastest lever. Not because the strategy was complicated — but because no one had been held accountable for the leakage before.