SUMMER 2019

130
THE DISTRIBUTOR’S LINK
NELSON VALDERRAMA YOUR PRICING IS THE KEY TO UNLOCKING FASTER GROWTH - PART 1 from page 24
Imagine source: hbr.org/1992/09/managing-price-gaining-profit
Naturally, this begs the question: “If improvements in price
typically have three to four times the effect on profitability
as proportionate increases in volume, why aren’t more
owners taking advantage?” That usually depends on who
you’re asking.
Excuses Come In All Shapes and Sizes
As with any major change in a business plan, there
are always a thousand reasons not to try something new.
I’m oversimplifying a bit here, but one of the biggest
reasons in our industry is simply that distributors perceive
pricing as too complex to mess with. For example, let’s
say a typical mid-sized distributor has 1,000 customers.
Let’s also assume they have an average number of active
SKUs at around 5000 SKUs and at least 3 quantity breaks
(few, medium and many)...when you run the math on that,
you get a whopping 15 Million possible combinations that
need to be priced properly!
Another major reason I hear time and time again from
owners, GMs or leaders is simply a matter of allocating
enough time to the issue. Let me ask you a question: how
many days in 2019 have you invested on pricing, either
talking or collaborating with your team? If you’re like most
teams I talk to at expos and conferences, your answer
is probably something like “not enough”, “we review our
margin at the end of the month”, “when we have a few
free hours”, or more recently, “thanks to new tariffs,
we’ve been reviewing pricing much more”.
In fact, a CEO told me the other day that they have
been considering bringing someone in to assess their
pricing for FOUR years but haven’t
gotten around to it…another COO
told me “we handle our pricing
internally” but when I spoke to his
GMs, they confessed it’s been years
since anything has happened with
their pricing.
I don’t know what the perfect
answer for your team might be, but
at the end of the day, I just urge
you to be honest with yourself. Take
the time to actively look, engage or
provoke your organization to allocate
time into pricing. You know the return on that investment
has 3-4 times the potential of focusing on volume alone,
so don’t let it go to waste.
The harsh truth is this: Jeff Bezos and his team
wake up every morning believing that your margin is their
opportunity, do you have the same passion for your margin
and pricing?
So How Do You Get Started?
In my next article, I’ll discuss strategies for categorizing
your current pricing practices and share some simple
frameworks for understanding where your opportunities
lie as well as the fastest path to profit depending on what
type of team you run.
First though, you need to take a look inward and take
inventory of where you stand today. Ask yourself....
¤ When was the last time you evaluated
your pricing?
¤ What practices do you have in place to
categorize your customers currently?
¤ Do you have any automated tools in place
to help you better spot inefficiencies?
¤ Does your sales team have the insights they
need to communicate price ROI?
¤ Are you REALLY taking advantage of all the
data in your CRM to optimize pricing?
Take a moment, take a breath, and take the first
step toward maximizing your returns through improved
pricing. It’s the best decision you’ll make for your
business this year.
NELSON VALDERRAMA