Distributors tend to look at their “contract” business monolithically. It’s easy to feel that if an item is on contract with a customer, the item must be price-sensitive and therefore is off limits to review for margin improvement.
The reality is “contracts” come in all shades – from the most price sensitive sales where the price can’t be changed for a set period of time to relatively incidental items that are based on verbal agreements. If you are not including your contracts in your margin improvement system, you are leaving money on the table.
There’s extra profit to be made by systematically reviewing contract items:
- Determine how much latitude you have to increase margin.
- Understand under what circumstances you can increase and when.
- Generate a list of pre-determined contract margin increases ready for implementation based on contract timing and when suppliers increase costs.
Every contract commitment should be reviewed on a regular basis. Doing so will get profit off the table and onto your bottom line.
The pricing experts at Profit2 help manufacturing and distribution companies improve margins and increase profits. For help with pricing strategies, contact us today.
