Imagine your company as a boat that has a lot of leaks. When you’re sailing fast the leaks may not matter. When you’re going slow, they matter a lot.

You’re no doubt looking at expenses right now. Are you also focused on pricing leaks?

Most distributors give away a point of margin or more…If they just had the time to “batten down the hatches.”

Make 2020 a Better Year

1. Eliminate Dated Customer Contracts

I’ll bet you have at least 5,000 customer pricing records you shouldn’t. If you don’t review all records once a year, you have a big leak. Salespeople set up pricing based on sales assumptions. Those assumptions are seldom revisited. Take time to review each record. Delete those that aren’t needed. Identify opportunities to raise margin.

2. Convert Fixed/Net Price Contracts

If you have fixed price contracts that don’t change when costs go up, it’s tough on profits. If you have fixed pricing on less competitive sales…you have an unnecessary profit leak. Convert fixed price records to a multiplier. Ask your pricing manager for a list of these contracts. We think you’ll see a lot of lost dollars on the page.

3. Base Pricing on More than Volume

Now is the time to change how you segment customers for pricing. Stop basing pricing just on sales volume or potential. Factor in the profitability of your customers. Add in how your customers pay their bills. Include cost to serve factors which determine your net profits.

4. Stop Underpricing “Incidentals”

The safest and quickest way to build margin is to focus on the most incidental sales you make. Look at your margin on the “bottom 30%” of what you sell. These are items your customer buys a couple of times a year; and on which they spend less than $1,000 per year. Your margin should be 10 to 12 points higher than your average on these sales. If not, fix this leak now. Gain 4 to 5 points of margin on 30% of sales.

5. Take Apart Blanket Pricing Contracts

Use a scalpel to price the limited number of key items using new customer-item pricing records at competitive margins. Then price the more incidental items at a higher margin by raising the margin on your existing pricing record. You’ll have more control on the pricing of key items, and you’ll make more on all the other items. Plus, the increase in costs will provide you the cover you need to increase pricing.

Try Our ROI Calculator

You’re no doubt aware of these issues for you distributorship, but who has the time and direction to implement a program that can increase company margin by 1 point or more in just 6 weeks versus years?

Enter your sales details into our ROI Calculator Form HERE to see what your potential ROI would be with Profit2. If you like what you see, you’ll be able to easily schedule a call with one of our partners.

Published On: June 5th, 2020 / Categories: Articles, Featured, Industry Leadership /