Client: A $50 million distributor of Electrical Supplies with 6 branches
Client’s company margin had remained stagnant for years despite an internal program to increase margin. There was significant variation in margin from branch to branch. This variation resulted more from personal pricing practice variations than market conditions.
Margin increased by 150 basis points within 60 days. Company margin has continued to increase through the second year of the program and now exceeds 300 basis points. Sales have continued to grow at significantly higher margin rates.
Client sales had grown at or above industry rates for five years since new management had taken responsibility. However, PAR reporting showed that unlike similar firms the company’s margin had remained stagnant. Overall, the client’s margin lagged similar firms by a full point. Branch margin varied significantly, but did not seem to be linked to market conditions or competitive activity.
Client had set up their pricing system with the help of their ERP system provider several years before. In our opinion, the installation had been rushed because the software provider had been far behind promised startup.
More than 50% of the client’s sales came from commodity products that are subject to significant cost fluctuations. Unfortunately, this system setup had made reacting to cost changes difficult, so the branches had taken over full maintenance responsibility. However, the branches pricing practices were highly inconsistent. The result was a pattern of severe margin compression. Large and small customer margins were too similar. Incidental sales were frequently priced at or below the branches average margin. In short, the client had surrendered any strategic or tactical pricing control.
We were able to work with the branches and client corporate leaders to:
- Review all system pricing records
- Set up new “evergreen” pricing records that require less maintenance
- Purged the system of the overly complex records from the software provider
- Built a system with purchasing to react faster to commodity cost swings
- Utilized transaction data to aid in pricing job bids
- Improved pricing skills of sales team thru training seminars
- Develop Pricing Management Dash Board for company leaders