Happy that the weather cooperated for my early morning drive to WIRE-Net's first seminar of 2016. Sad that I didn't win the powerball lottery. Happy to see so many good friends wanting to learn how to improve their pricing, sales, and gross margin!
Right away, Ralph Zuponcic made me brush off my dusty math skills from high school. He said to look for the most actionable solutions first – pricing is the most highly leveraged, followed by your sales organization.
"More than 83% of U.S. manufacturing companies are leaking 2-4 margin points annually through pricing." That's $200,000 to $400,000 for every $10 million in revenue. Ouch! Who can afford that? Do you know where your leaks are occurring and how to stop them? Ralph said to look at freight costs first.
Also beware of price discounts! Price cuts have a serious negative effect on profits. If your product costs 91.9% of your full price, your profit is 8.1%. A little 3% price cut by the average S&P 500 company knocks profits down from 8.1% to 5.1%—a whopping 37%!
Don't Assume that Lower Prices Lead to Higher Volume. Looking over your last year sales and customer history, you may have received a higher price and still sold higher volume. That means that you haven't reached the price threshold for your product. Do the math! Then teach your sales force how to sell for profit:
Profit = Sales Volume X Price – Cost
Your salesforce influences 2/3 of the equation so reward them on both volume and price.
Take Ralph's advice:
- Identify your most profitable sales people and determine what makes them successful
- Identify your least profitable sales people and target for improvement initiatives
- Prioritize accounts by most profitable, and guide sales teams to focus their efforts on the highest areas of opportunity.
- Quantify your least profitable products or product lines, and uncover opportunities on profit improvement methods for these products.
If 20% of your customers deliver 80% of revenue, then, it's likely that smaller accounts are under managed and ripe for price improvement.
Learn more on the PricePoint Partner blog. Or if you're not that good at math, give Ralph a call at 330.342.0923.