Jason Bader: And if you could, just in a few minutes, just tell us a little bit about the service that Profit2 provides to distribution.
Dave Roller: Our customers hire us initially on a one-year contract. Our responsibility is to do a complete analysis of their current pricing system and make recommendations. Those recommendations can include things we’ve talked about today; enriching how you stratify customers, changing your contract pricing, and modifying the matrices that you have in your pricing module. But what we want to do is to work hand in hand with our customers to develop a methodology, as I mentioned earlier, that will stick. That will enable them to increase margin long term. Where we aim is down low, at the low hanging fruit typically impacting about 30% of our customer sales. Our goal, on average, is to pick up about five points of margin on that set of sales and do that in the first three months. That’s the analytical part. The others side of the coin is the behavioral part. As everyone well knows, we’re an industry where salespeople have a good deal of liberty in how they price. In fact, we’ve found that salespeople lower the system suggested price on 45% of all invoice lines.
Jason Bader: Oh, sure. Yeah, absolutely
Dave Roller: Part of our job is to replicate the pricing system of our clients on our servers- we look at every transaction and we measure how much gross profit is gained when you used the price. Here’s how much you left on the table when they lowered the price. The process is not magic, it’s not like turning on a light switch. What we’ve seen over time is when our customers utilize the information that we send back to them to help coach and help their people use the pricing with greater frequency, it has a powerful, powerful impact.
Jason Bader: So, not wanting to put you too much on the spot here, but I mean you know you said 5% on the bottom third of it. What does that really translate out to? What do most customers after let’s say a year on the system…what is gonna happen with the gross margin percentage?
Dave Roller: Our average client gains 1.6 to 1.7 margin points on total sales.
Jason Bader: Gocha. I will say I’m glad you put that number out there cause that’s tracking exactly with the person who referred me to you, who introduced me to you all said 1.75 that’s what they picked up in that first 12 month period.
Dave Roller: And I’ think it’s important that at the same time when we work together hand in hand with the client it’s not negatively impacting sales because the purchase frequency is so low, dollar spend is so low on the sales where we are raising margin.
Jason Bader: Yeah. Is there a size company that somebody really needs to be in order to take advantage of your services? I mean, someone, can a $5 million distributor take advantage, or is it really a sweet spot more $15-$20 million in revenue?
Dave Roller: It’s a little higher. Probably the minimum client size for us is in that $20-25 million.
Jason Bader: Yeah, okay that makes sense.
Dave Roller: Our average client is probably closer to $75 or $80 million and we have a few really, really large ones, but what we need is the ability to get information out of the ERP system that they’re running. All of the modern ERP systems are very good at exporting transaction data, pricing data. We’re also able to work with most legacy systems.
Jason Bader: Gotcha, okay. Well Dave, if somebody wants to engage you, how do they find you?
Dave Roller: They can find us at profit2.com and my email is [email protected].
Jason Bader: Perfect, I will make sure that those are highlighted in the show notes and I’d love to have people find out a little more about you. I did spend a little time on your website and there’s a lot of really good information there as well. You all did a nice job on that so.
Dave Roller: Jason, thank you so much
Jason Bader: Yeah, my pleasure. Thank you again for coming on! It’s always fun talking about pricing. Pricing is one of those emotional things in a distribution business and I really enjoy talking about that and kind of dispelling those myths that we have around it.
Dave Roller: Well, it’s been a pleasure.
Jason Bader: Take care, Dave and I look forward to the next time our paths cross.
Dave Roller: Thank you.