Floors and Ceilings, Targets and Ranges
At the most fundamental level, the approach epaCUBE takes to distributor pricing is to analyze your sales history and then apply statistical formulae to create a minimum and maximum range, a statistical floor and ceiling, a target price and then evaluate acceptable ranges in that statistical distribution.
At the risk of oversimplifying the complex math behind the epaCUBE software, imagine a bell curve that is created from the entirety of your sales transactions except for unusual orders that we can hand pick to exclude so that we don’t skew the results. This bell curve gives us the main metrics we need to begin our analysis. For our minimum metric, we might set the mark for the smallest amount of gross profit we previously accepted for an order. We then could look at the largest order in terms of gross profit that is not over list price and set that as the maximum. For our target range, we look at the middle of the bell curve that shows us historically what is typical for gross profit across all of our transactions.
Floors and ceilings require some deeper statistical analysis. There is a statistical point where we should set a floor for gross profit and never negotiate below this floor. The floor will naturally be above your absolute minimum, but going below the floor is cause for concern for long-term profitability. Likewise, there is a statistical high point called a ceiling. When you sell over the ceiling you are assuming a level of risk because you could potentially lose a customer’s order or even the entire business of that customer.
The floor and the ceiling operate as a basic framework to keep your pricing decisions in range for all your customers. But the range between them is filled with inconsistencies. These inconsistencies are the hidden areas of your business where broken pricing is eroding your gross profit. In the most basic sense, epaCUBE Distributor Pricing Science calculates the dollars lost in those inconsistencies and identifies them for your team to take corrective action.