If you’re like most distributors, you already provide several value-added services at no cost to your customers. But have you analyzed the cost and value of those services? Chances are, you need to get more intentional about delivering, marketing and monetizing them.
We recently spoke about this topic on our weekly show, Wholesale Change.
Understanding and monetizing value-added services in distribution is becoming more important because:
- What were differentiators in distribution have become commoditized, such as getting products to customers quickly and conveniently, and offering a wide assortment of inventory.
- Simpler transactions with high margins and low service costs are increasingly moving to marketplaces.
- More manufacturers are distributing directly via e-commerce because delivery is more affordable and accessible.
- Local manufacturers, and even customers, can increasingly make items themselves using 3D printing, bypassing the supply chain.
If you want to differentiate in this market, you must look at what you can offer that others cannot or will not. We believe value-added services are a perfect solution.
What distributors get wrong about value-added services
Most distributors don’t understand the actual cost and value of their services. Their offerings are the result of ad hoc, structureless aggregation according to need. Therefore, they can’t establish, prove, communicate or monetize the value their services provide. As a result:
- High-value services are being given away at no cost.
- Distributors can’t list and/or define their services on their websites.
- Services are not uniform across branches and depend on one or two individuals’ expertise.
- Quality of services isn’t monitored or managed.
How to choose, monetize and sell your value-added services
The number of services distributors currently provide hardly scratches the surface of what they could. This means there’s great opportunity for growth. However, with hundreds of potential services, how do you identify the right ones for your business?
Offer what marketplaces cannot.
We divide services into three categories: logistics, informational and value-added processing. Logistics services are often related to the supply chain, as in bin replenishment and kitting. Information services include such offerings as design, configuration, technical support and training. Value-added processing services are hands-on, such as product setup, software setup and repairs.
These categories don’t appeal to marketplaces because they don’t fit their profit model. This is where you can grow your business with value-added services. You simply have to be strategic in choosing services that differentiate you from direct competition, avoid crowded service categories for your industry, and answer a need for your customers.
Bring in a general manager for services.
If you’re not charging fees for services, you’re probably not controlling for cost and quality. With a dedicated person in charge, you can start putting the right processes in place to move in the direction of profitability. This person should monitor and manage costs, and work to unbundle services from products.
Build your services stack.
To identify the most useful services and build your service offerings, perform quantitative and qualitative research to find out what your customers need. This could include focus groups and/or surveys. It could also include research on your competition and suppliers. What services do they offer and how do they present and monetize them? In selecting services, ask yourself:
- Do customers care about this service?
- Does it help them improve efficiency with the product for better results and/or lower costs?
- Does it overlap with and threaten services your customers already offer?
- Does your competition offer this service, and can you go above and beyond in the category?
Estimate cost to deliver and value to customer.
Once you’ve established which services to offer, estimate the actual cost to deliver them and the potential value for the customer. This will help you monetize your services and prove their worth.
In estimating cost to deliver, factor for both your actual costs and your expected pro forma costs once you get more efficient. If you based price on your cost today, it might put you over market. Instead, consider pricing to your future costs. Also consider that it will take time for a significant percentage of distributors to charge for their services. To win business and get customers to accept the charge, you may have to offer something extra and do the service measurably better than your competitors.
In estimating the potential value for the customer, draw from those customer surveys, interviews and focus groups. How are the services you currently offer helping your customers? Are they saving on cost, efficiency, labor or materials? Quantify the economic value, even if it’s imprecise.
Display and market your services.
Now that you’ve built and monetized your offerings, make them easy to find and understand, and make their value known.
- Create or enhance a services tab on your website and include detailed descriptions for each service. Some companies have even started using videos to outline service processes.
- Compile and market examples of value, such as with a quarterly cost savings report.
- Consider adding customers’ projected savings to their invoice in a category like “this much value delivered” to highlight benefits of value-added services they might miss otherwise. You can do this whether you have monetized the service or not.
- To truly compete, consider allowing online purchases of services.
As you build and promote your services, it’s important that you’re thoughtful about your offerings. There’s a big opportunity here. Use it to choose the right services, communicate them, understand their value and turn them into a profitable part of your business.