SPA was featured in an article in the current issue of Contractor Supply Magazine. It describes how strategic pricing initiatives can lead to improved margins and don’t require extra trucks, added salespeople, extra infrastructure or any of the other expenses associated with “growth.”
Excerpts of the article authored by Frank E. Hurtte Jr. who has 28 years of distribution industry experience and a lifetime in sales follow.
“the deck is stacked against you from the start”
Customers are constantly pushing backwards against your price. Sometimes this happens because the purchasing guy is classically trained to ask for a better deal. For those doubting my “classically trained” comment, Google “purchasing negotiations training.” While our sales teams are busy learning how to add customer value and solve complex customer issues, the procurement departments are learning how to negate our value message.
Further, most of the time customer requests for lower pricing are met with little resistance. Our sales team have actually reinforced the behavior. It’s like feeding table scraps to the family’s new puppy — give in once and the dog becomes a beggar for life. We’ve taught customers a lesson — ask and you shall receive.
“You need a powerful analytical tool”
…something that harnesses the power of advanced proprietary algorithms with powerful hardware. Analytics become a cornerstone of your metrics and measuring points.
Armed with management tools which provide exceptions to the pricing plan and levels of adoption of the plan by market, branch and salesperson, the distributor can begin to make progress. The analytical measures provide coaching moments with real data. Imagine sitting down with a salesperson and saying, “Your current pricing system compliance is 62 percent. What can we do to bring more customers onto the system?” Or, in a periodic review of numbers, being able to tell a salesperson, “If you would have used the system 95 percent of the time you would have earned $4,397 dollars more in commission this quarter.”
I get paid to help River Heights Consulting’s clients make money. Clients who put the SPA process to work typically add two full points to the gross margin of business run through the system. And, while most of my clients have large chunks of their business which are quoted jobs, contracts and negotiated project deals, they still find themselves running a substantial chunk of their sales through the SPA pricing process.
Improved margins don’t require extra trucks, added salespeople, extra infrastructure or any of the other expenses associated with “growth.” Most times, over 80 percent of the extra margin goes straight to the bottom line. For many distributors this is like doubling their profits.
This article was originally published as “Frank Hurtte – Strategic Pricing” in the April Issue of Contractor Supply Magazine, click here to read the complete article.
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