SPA Featured in The Distributor Channel article “Every Silver Cloud has a Dark Lining: Things to Consider in a Growth Economy”
SPA was featured in a recent The Distributor Channel article, “Every Silver Cloud has a Dark Lining: Things to Consider in a Growth Economy”, which discusses the fact that a strong economic growth business environment can “distract from strategic thought” and why a solid pricing process is an essential part of any strategic initiative.
“Every Silver Cloud has a Dark Lining”
Not to be a perennial bummer, but all this growth stuff presents a few issues for distributors. For the next couple of weeks we will explore issues tied to operating in a good economic times. So, without further ado, let’s explore the dark lining in what most view as a silver cloud.
“Issue One: Brisk Business Masks Process Breakdowns”
Surging sales provides stealth cover for many problems. You lose market share, but since the numbers are looking good you don’t notice competitors poaching business from some of your accounts. Mediocre sellers post growth dollars and their lack of skills go unnoticed. Sellers announce they are too busy for CRM data input. Warehouses get dirty, shelves get cluttered. Customer returns languish for months before suppliers are notified and credit received.
“Issue Two: Great Business Climates Distract from Strategic Thought”
Without the right kind of discipline, distributor types find themselves consumed by urgent issues and procrastinate strategically critical issues. It feels good to be busy and even better when busy is tied to the instant gratification of big business. But our world is changing… Actually spinning faster than ever before. Investing in strategic issues during good times is more important during upticks in the economy. Experience dictates, those with solid strategy go into recession better positioned and rise faster with the next upturn. Let’s think of strategically important topics.
“I believe a solid pricing process is an essential part of any strategic initiative. There’s three big reasons why:”
> Pricing Process drives bottom line results. The typical distributor using David Bauders’ Strategic Pricing Associates improves gross margin by two points. In some industries, this nearly doubles the bottom line results. For most distributors the gain is still in the 50 percent range. You can’t ignore this size of an increase.
> Company value is dramatically improved. Distributor businesses are valued on a multiple of bottom line profits before tax and interest (EBITA). Here’s a simplified example of how it works. A company putting $1M to the bottom line could be valued at 6 times earnings or $6M. That company increases the bottom line via pricing by 50 percent to $1.5M. Using the same formula, the company is now valued at $9M. Further, our research indicates companies with higher performance than industry norms often attract a higher multiple of earnings. So, the process may actually improve the value substantially more think multiple of 8, which means a value of $12M. Yep, pretty strategic.
> Processes in the sales department tend to interact. Building a credible pricing process requires detailed customer and supplier segmentation; marketing improves. Salespeople are forced to think more critically about the customers they invest time with. Targeting improves. And, sales teams with well-developed targets are 47 percent more effective in reaching their goals
Click here to read the complete article.
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