In these disruptive times it’s easy to feel frustrated and shake your fist about profit margins. After all, distributors are under pressure from every direction. It’s natural to blame someone else, such as your suppliers, your sales team, inflation or even your customers. But you can’t control these external forces.
But you can manage how they affect your business. Here are five steps to take back control of your pricing to achieve the profit results you want.
Make a plan
Start with being clear about what you want to achieve and why. Is it profit growth, more revenue or both? Keep it simple and build a strategy that’s aligned with your overall goals vs. just chasing after the urgent margin problem of the day.
Ask your people and customers about their pricing pain points. Make a list of what you can do better and start by fixing what you can. In addition, make an honest assessment of your pricing strategy, value proposition, people alignment, data analytics, and what you can do to give your people the knowledge and tools they need.
Part of your plan may be to invest in new software; there are many excellent cloud-based solutions. One piece of advice if you’re in the market for pricing software: It can be a dizzying experience to evaluate and select the best vendor for your needs. Take time and seek feedback from your teams about functionality you need and how your systems will integrate with each other for a successful implementation.
With a high-level plan in place, engage your teams. Communicate a clear “why” to keep on track.
Accept progress over perfection
Understand that you can and should find quick wins that save time, make money and improve how your people and customers experience your pricing. For example, work with your current team to simplify pricing processes, reduce admin work to free up selling time for your sales team, speed up customer quote requests, and make it a monthly topic for leadership communication.
Celebrating these quick wins will build excitement to go after bigger wins that will take longer. Just remember that your data doesn’t have to be perfect, the results don’t all come overnight, and your people won’t be entirely ready at first. It’s all about continuous improvement.
Unfortunately, many give up before they make real progress because they move on to other priorities, have tried to do too much too soon and get frustrated, or are hesitant to rock the boat with their sales team and customers.
Assign a pricing leader
It’s frequently said that distribution is a people business, and I agree. With that in mind, you want the right person to lead pricing. Ask yourself who owns pricing at your company today and how much time they work on it. Many companies include this responsibility in the role of busy executives or delegate it as an administrative function. Worse yet, nobody really owns it. Far too often the sales team is left to figure it out without good data for pricing decisions and without consistent management oversight of all-too-common excessive discounting. This leads to a lot of time spent by sales to individually craft pricing. Inevitably, this yields predictably poor results especially if sales reps earn commissions on volume.
Pricing experts frequently debate which department should own pricing. Your decision depends on your strategy and culture, but most agree that this role should report to the leader that is the most knowledgeable, passionate and capable to implement change. The position should ideally report to the CEO or one step down. Don’t bury your pricing team too far into the org chart.
Change is hard, especially for pricing projects. Some people will adapt, others will resist. Typically, people aren’t the problem. Rather the culprits are old habits, poor systems and incentive misalignment. Implement a communication and change management plan to educate people and bring them along in the process. You’ll need to use a combination of carrot and stick to keep adoption on pace.
Build pricing metrics into your management goals to keep it top of mind. If you run a distributor with a branch network, make sure your frontline managers buy-in and are trained to support this effort, because in many cases sales reps and customer service reps will take their manager’s direction more seriously than a corporate directive.
Make it a CEO priority
Every dollar of your company sales is priced by someone. How your people make those decisions has a direct impact on customer service, perception of your value and values, and your profitability. Simply put, pricing should be a top executive priority. Visible sponsorship is a key success factor, so sell it, measure it, and celebrate the wins.
If you want to improve profits, take the first step – and then stick with it. The world is changing fast, and your customer needs are evolving. The distributors that have worked to improve how they manage pricing are seeing powerful results.
If you’re ready but not sure where to start or don’t have internal bandwidth, consider hiring a specialist who has experience in this area of the business. Stop being frustrated. Start getting results.