Every business owner knows the drill… it’s 1:00 a.m., and you’re staring at the ceiling.
Sure, your distributorship is doing ok. Sales are growing, profits are up… but is that enough? You know the market is changing fast. Big companies are snapping up the smaller fish. The sacrifices of past generations come to mind. Your extended family and board have expectations. The fate of a lot of hard-working employees is at risk. And should you be excited or scared by technology?
Ready for 2050?
Is your business ready for 2050 or has it already peaked?
What does “ready for 2050” mean? Well, you must know what you want – and most owners do – but it can mean different things to different owners. It might mean selling your business for the optimum amount to reward your family’s hard work. Or is your dream to pass on a stronger, bigger business to your heirs?
Either way, the dream requires fuel. The fuel which unlocks options is profit. Most distributors have very specific plans to try and increase sales. Nearly all distributors have been looking at costs and are running lean in 2026.
That leaves one important lever on your income statement…Margin.
The Difference +1.7 Can Make
Did you know that about 25% of distributors are 2 to 3 times more profitable than the average company in their industry? That’s true for Electrical, HVAC, Plumbing, Pipe, Janitorial, and most other distributors.
Below is an example of two $100,000,000 distributors. The example on the left is a distributor whose earnings are in the average range for their industry. Then look at the distributor on the right. Their sales are the same; operating costs aren’t different. The only change is on the margin line.
The only difference is that the top quartile distributors enjoy a higher margin. What a difference that extra +1.7 points make. Their earnings are 50%+ higher than the average company’s. And just compare the difference in the value of the companies!
At this point you may be thinking…well, sure, IF I could get that extra margin. But your company is in a very competitive business. Tons of competitors, some dumb enough to give away stuff.
Let’s Talk Incidental Sales
If you look at margin holistically, you may convince yourself that margin can’t be safely increased. On the other hand, if you look at margin management as having two distinct sides, you will see the opportunity. The pie chart below illustrates your opportunity.
Almost all distributors have about 70% of their sales that are very competitive. Margins are slim, customer focus on pricing can be intense, and there’s a lot of competition. We’d suggest that distributors spend 90% of their pricing effort on this side of their business.
We see pricing from hundreds of distributors and the fact at the end of the day is all distributors sell their top A&B competitive items at about the same margin.
The gold slice of the chart equals about 30% of sales – but 90% of the extra margin opportunity. This is where the top quartile of higher-earning distributors outperforms the average guy. They make 10-12 points more than their average company margin. We’d bet your company is closer to only 5-7 points more. That extra 5+ points on 30% of sales gives top companies a tremendous advantage in the race to 2050.
The top quartile distributors (and Amazon too) target incidentals because they know:
- Incidental sales are not price-elastic
- The average incidental item is purchased just 2 times a year
- Customers spend less than $500 per incidental item per year
- Salespeople aren’t sure how to price incidentals and leave money on the table
Take a few minutes to talk with us about your business. See exactly how companies like yours have safely increased margin and got ready for 2050.
And have a good night’s sleep.
