Crises present an opportunity for a forced reset. If you’ve been sacrificing margins to gain market share and drive the top line, this tactic won’t lead to healthy, sustainable margins. You must shift away from a focus on winning customers before vetting their value and instead adopt a strategic, data-driven pricing process.
To help with your margin recovery and deliver a much-needed pricing reset, we’ve identified five rules for your success:
Rule of Visibility: Your people cannot optimize what they cannot see. You must provide visibility to your team by ranking customers. Use sales, gross margin, alignment, and cost to serve to segment your customers. Possible categories include core, opportunistic, marginal and service drain.
Rule of Control: You cannot preserve profit if you do not lock costs. Cost-plus pricing has been a staple approach for distributors, but for it to work, you need to lock costs for a specific period so that your sales team does not mark up a cost that is the result of better purchasing.
Rule of Ownership: You cannot achieve results if you do not create accountability. It is essential to create accountability and transparency in your pricing process. Only 1 in 15 distributors today have someone responsible for pricing.
Rule of Focus: You cannot win big if you lose sight of your core business. Apply the 80-20 rule to separate the value from the noise to stabilize pricing in your core business. Establish a consistent process for prioritizing strategic customers, critical products, and preferred suppliers.
Rule of Balance: You cannot ignore the role of autonomy. You need to customize and balance your pricing strategy with where your company stands in a pricing autonomy (low or high) vs. sales management (low or high) matrix.
In our new guide, The Distributor’s Margin Recovery Roadmap, we outline how distributors can apply these rules and get on the road to margin recovery today.