5 Great Strategies to Increase Revenue for Distributors

In a business world where market factors are currently characterized by slowing demand, inflation, and continued market instability, staying smart and business nimble is critical for distributors. If your organization is still positioning product availability and support ahead of price in terms of importance, it may be time to re-evaluate and become an industry leader in how to increase revenue for distributors. Yes, it may be true to say, adopting innovative technology like pricing software is crucial for staying competitive and it is time to get granular and digital with your pricing decisions. However, it could also be equally true to say that simplifying matters to that extent could miss the unique strategy that your business may need to increase your revenue.

At Pricefx, we have spent the last decade and more assisting our friends and customers in in the distribution industry set automated and real-time customer-specific pricing processes, optimize their pricing strategies and overall, become more profitable and future-proofed businesses.

In this article, we will look at 5 examples of different strategies and tactics that your distribution business could potentially use (depending on your company’s specific business objectives of course), on the route to increasing revenue and becoming a more profitable organization.

5 Strategies on How to Increase Revenue in the Distribution Industry

In navigating the intricate landscape of the distribution industry, it is crucial to recognize the diverse nature of businesses within this sector. While there is no one-size-fits-all approach to revenue growth, certain strategies and tactics have demonstrated remarkable success across a broad spectrum of companies. At Pricefx, drawing from our extensive experience working with companies in the distribution industry, we’ve identified 5 key tactics that highlight versatility and effectiveness.

It’s essential to note that every business operates within its unique context, and not all strategies may seamlessly align with each company’s specific business model. However, these tactics encapsulate common use cases, offering valuable insights into methods that have proven successful for many companies in the distribution sector. As we delve into these strategies, consider them as adaptable frameworks to inspire and guide your journey toward revenue enhancement in the distribution landscape.

1.   Increase Revenue and Margin by Simulating Impact of Mass Price Changes

In the pursuit of maintaining or surpassing the planned gross margin for the current year, businesses often encounter challenges stemming from dynamic factors such as supplier cost increases, transportation constraints, and supply and demand imbalances. These unforeseen changes create a divergence between expected and projected earnings, necessitating prompt pricing actions across entire product portfolios, markets, or geographic sectors. However, the complexity arises in targeting price changes at a granular level, compounded by the limited time available for data updates, modeling, review, and reaction. Moreover, the lack of visibility into the impact of market cost changes on margin and volume, along with an inability to identify underperformance and recommend price improvements, further complicates the situation.

To address these challenges and bridge the gap between expected and actual business performance, distributors require a specific capability – the ability to evaluate options for price changes swiftly and simulate the impact of mass price changes across various dimensions like product, customer segment, and geography. This capability involves a seamless connection to your CRM, ERP, or other systems for the efficient execution of updated price lists and customer contract pricing. The benefits of such a capability are multi-faceted, encompassing improved margins through frequent and strategic price revisions, reduced margin compression by minimizing manual errors and ensuring timely pricing updates, and increased margin with decision support. Key performance indicators (KPIs) revolve around measuring margin improvement resulting from more effective targeting of mass price changes.

By adopting this capability, distributors enhance their agility in responding to market dynamics, ensuring optimal pricing strategies, and driving revenue and margin growth.

Check out this video for more information on simulating the impact of price list changes:

2.     Quick Price List Recalculations & Pricing Strategy Changes

In the ever-evolving landscape of the distribution industry, recalculating and implementing pricing changes swiftly is a critical strategy for achieving revenue growth. Whether prompted by shifts in market conditions, alterations in overall strategy, or changes in supplier costs, the ability to promptly publish new price lists is paramount. The challenge arises from the frequency of potential price changes, which could occur daily, weekly, or monthly across various market segments. The intricacy of calculating and communicating these updates in a timely manner is not only time-consuming but also introduces the risk of errors, potentially leading to margin leakage.

To navigate this complexity, distributors need a robust capability that allows for real-time pricing updates triggered by new input variables and recalculation logic. The execution of these updates should seamlessly integrate with ERP systems, ensuring an efficient loopback mechanism for accurate pricing implementation. The benefits of such a capability are substantial, offering increased margins through more frequent and faster price updates. This approach simultaneously addresses the challenge of margin compression by reducing manual errors and ensuring timely pricing adjustments. Key performance indicators (KPIs) for success lie in margin improvement and enhanced price realization resulting from more frequent and agile pricing changes.

The formula for success is straightforward: Margin improvement equals the new margin minus the old margin. Embracing this strategy positions distributors to not only protect their margins but also to capitalize on revenue opportunities in a rapidly evolving market.

To learn more about how proactive price list updates can save your business time and money, check out this handy article:

3.    Setup and Update Customer Specific Pricing by Customer Segment and Product

Establishing and updating customer-specific pricing by customer segment and product is a pivotal strategy for distributors seeking revenue growth. The first step in this approach involves flexibly setting a pricing framework tailored to individual customers. This framework typically hinges on objective criteria like geography, customer class, or type, further delving into specific customer behaviors such as revenue, share of wallet, and cost to serve. Some companies might adopt a multifaceted approach, combining both customer and product attributes, often iterating these frameworks annually to ensure adaptability. However, complications arise as existing tools often lack the required flexibility to establish such intricate pricing rules. There is a notable absence of global transparency concerning how each attribute influences pricing decisions, and the tools in use often fall short in calculating the potential impact of customer-specific pricing (CSP) discounts. Manual calculation and upload of conditions not only introduce inefficiencies but also pose a risk of failure.

To overcome these challenges, distributors need specific capabilities. They must be able to create a framework that is flexible at any level of customer and product granularity. This flexibility allows for the seamless adaptation of pricing rules to the evolving business landscape. Automatic conversion of this framework from the pricing tool into conditions with ERP access sequence ensures a smooth integration process. Additionally, the ability to simulate the impact of a customer-specific pricing rule is crucial for making informed decisions. The benefits of such capabilities are evident – distributors can flexibly simulate and set discount frameworks according to business needs without limitations imposed by existing ERP structures. Key performance indicators (KPIs) for success lie in monitoring exceptions from standard customer discount frameworks and measuring the time required to generate customer frameworks and upload conditions into the ERP system.

This strategy not only ensures a tailored approach to pricing but also enhances operational efficiency in managing complex pricing structures.

4.     Eliminate Unearned Discounts – Use Automated Rebates with Accruals and Payouts

In the quest for revenue growth and business retention, distributors often seek to align with   business objectives by deploying rebates with specific customers. However, the implementation of rebate programs comes with its set of challenges, making it a complex and time-consuming process. It requires internal and customer consensus on the rebate mechanism, amount, documentation, accrual setup, performance monitoring, and timely payouts when earned. The complication arises from the involvement of multiple parties – sales, pricing or product teams, and finance – each having distinct roles, responsibilities, and interests in the rebate process. Sales and pricing teams need to secure internal and customer approvals, whereas finance is tasked with setting up accruals and overseeing payouts. The lack of a cohesive framework often leads to disconnected activities, requiring extensive interaction to ensure a smooth internal process and optimal customer experience.

To streamline this intricate process, distributors need a robust capability – an integrated framework overseeing rebate establishment, approval, documentation, accrual setup, performance monitoring, and payout execution. Such a framework ensures efficiency, reduces manual intervention, and aligns all parties involved, enhancing the overall effectiveness of the rebate strategy. The benefits are evident in achieving or surpassing performance targets related to volume growth or business retention. Key performance indicators (KPIs) revolve around monitoring rebate performance against targeted objectives, be it volume or revenue. Calculations involve assessing rebate performance as a percentage of targeted goals and determining rebate effectiveness based on the variance between actual and goal values over multiple time periods.

By adopting an integrated approach, distributors not only simplify the rebate process but also enhance their ability to achieve strategic business goals effectively.

To learn more about making rebates a critical component of your company’s pricing system, check out our ultimate Pricefx and Enable rebates eBook:

5.     Adopt Guided Selling to Improve Margins, Speed & Quote Win Rate

In the distribution industry, where customer inquiries for product quotes pour in throughout the year, responding promptly and effectively can be the key to securing business. These inquiries often manifest in two primary scenarios: the first being an annual quote, outlining product purchases for an upcoming fiscal year that could lead to the execution of a sales contract, and the second being a one-time spot purchase for specific projects or immediate needs. The challenge lies in the intricacies of handling these quote requests, typically received by sales and quote teams via email or direct interfaces with a customer’s purchasing site. These proposals then traverse through various internal teams responsible for proposal management, where they are evaluated for pricing and volume commitments, approved, and subsequently transmitted back to the customer by the sales team. The numerous handoffs in this process consume valuable time, potentially affecting the win rate if there are delays in responding to customers. Additionally, the complex task of swiftly performing the necessary analysis to determine the right price, considering current and projected market conditions, adds to the challenge.

To overcome these challenges, distributors require a specific capability – a quick, integrated solution that streamlines the entire process of receiving, evaluating, and responding to customer quotes. This solution should not only provide the right pricing but also ensure swift and efficient communication, enabling businesses to secure the deal. The benefits of such a capability are far-reaching, impacting company volumes, revenues, and margins positively. Key performance indicators (KPIs) in this context focus on the cumulative win/loss percentage on quotes, serving as a measure of the effectiveness of the adopted strategy in securing profitable business deals.

By adopting this capability, distributors not only enhance their responsiveness to customer inquiries but also improve their overall competitiveness, resulting in improved business outcomes.

Discover How to Use Pricefx to Manage Increasing Your Revenues

Having gained insights into a diverse range of strategies to increase revenue within your distribution organization, you might be interested in diving deeper into understanding how an automated pricing software solution, such as Pricefx, can effectively address your persistent pricing challenges and bring these tactics to fruition.

For example, to explore the informative article below to discover the key rebate automation features that Pricefx software offers in partnership with Enable, to cater to the needs of distributors like yourself:

Meanwhile, Happy Pricing!