For a lot of distributors, it’s been different versions of the same story for the last few years: revenue is rising, but margins keep shrinking. Between rising vendor costs, general unpredictability in supply chains, and inflation, maintaining profit margins is proving to be one of the top concerns for distributors in 2023.
Maintaining profit margins is obviously much easier said than done for distributors. If you overcompensate, your customers can always jump ship to someone else with better prices. If you don’t adjust your prices enough, your margins will continue to compress and profits will suffer. In either case, market volatility is virtually guaranteeing that most pricing changes end up being outdated anyway in as little as a few weeks.
Fast Facts:
- 40% of distributors who don’t employ price optimization technology and practices are completely eating rising costs.
- 27% of non-optimized distributors are eating some costs and passing others on to their customers.
- Only 33% of non-optimized distributors are fully passing their costs on. For comparison, 79% of optimized distributors are fully passing their costs on.
How Profit Optimization Solves Distribution’s Big Pricing Problems
To quickly reiterate, distributors in 2023 face two major pricing problems:
- Prices aren’t where they need to be in order to guarantee consistent margins.
- Costs are changing too quickly for distributors to maintain both competitive prices and healthy margins.
Price optimization practices and technology can solve both of these problems by helping distributors better respond to volatility with price adjustments in either direction. Especially in our current economic climate, customers expect price increases. Price optimization systems allow distributors to be nimble and strategic as they bolster margins.
So how do they work? Price optimization systems act as a central repository for all pricing information, customer information, and sales data. All the information you and your sales team needs in a single platform. As many distributors still manage prices in spreadsheets, migrating to a simple dashboard containing every SKU in a filterable list with prices that can be edited on the fly represents a huge step forward. But that’s far from all that price optimization systems offer.
Once you have all your pricing information in one place, making changes to individual products or lines of products is much easier, but how are you to know exactly what the prices should be? Distributor-focused price optimization systems also utilize customer data and automatically-adjusted cost inputs to delineate what the cost of different products should be for A, B, and C grade customers in order to better protect and grow margins. When many distributors first start using price optimization tech, they discover that some of their A customers are actually C customers getting much better pricing than they ought to. Price optimization software almost immediately exposes the real customer grades, allowing distributors to offer better deals or raise prices accordingly.
To Sum It All Up…
Price optimization solutions take distributors from manually adjusting spreadsheets with best-guess pricing to:
- Instant changes across full product lines
- Price segmentation according to customer grades
- Pricing tailored to maximize margin without sacrificing competitiveness.
epaCUBE provides a suite of price optimization solutions and services designed BY distributors FOR distributors. For over 20 years, we’ve used our industry experience to help distributors maintain and grow profit margins.If you’re interested in learning more about price optimization’s real impact for distributors, please feel free to reach out to epaCUBE for more information.