Distribution Dynamics: Its Time for a New Strategy for Profitable Growth

February 9, 2015

To say that distribution companies have a lot of moving parts is an understatement. The inner-workings are massively complex, with hundreds of thousands of products, tens of thousands of customers, hundreds of sales reps, volatile costs and constantly evolving competitive dynamics. To sell as profitably as possible, each sales rep should know — each and every day — which customers to call on, what products to sell and what price to charge. If they don’t know the optimal answer to each of those questions, the distributor misses out on a wealth of revenue and profit available in the existing book of business.

Pricing is by far the most effective profit lever available to any company. In distribution, success means offering the broadest product line possible, while also getting paid for the value-added services you provide.

In the face of an overwhelming number of customers, products and go-to-market methods, distributors often set pricing in terms of a target margin percentage, cost-plus or list-minus. These simplistic approaches are actually harming profitability and in some cases, market share. This whitepaper explores why and presents a new strategy for profitable growth.

Peripheral to the matter of pricing, hitting top-line revenue targets can be a constant struggle in distribution. The culprit? Customer churn. At any given point in time, customer churn rates, meaning customers that either defect entirely or reduce purchase volume, are between 20 and 30 percent. That means if your goal is ten percent growth this year, you first have to overcome churn rates, which means you actually have to grow 30 to 40 percent before netting ten!

It’s nearly impossible for reps to spot churn on each account given the sheer number of products and customers in their books of business. In today’s global marketplace, buyers have more choices and thus greater purchasing power, making them more prone to cherry-picking and/or defection. Both scenarios contribute to a recipe for disaster, forcing distributors to leave money on the table and lose share to competitors.

This whitepaper explores challenges to profitable growth and presents a new strategy for profitable growth.

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