Business intelligence blog

    Five ways to increase profit margins in distribution

    Tracking profit margins is a full-time activity in distribution. Out-of-date reporting systems with little to no visibility beyond sales data can result in your business spending more money to sell products than they cost. Even if revenues are up, unless monitored closely, margins within individual sales can erode, leading to strategies that may not be in the best interest of your business.

    Phocas data analytics is preferred by many distribution and wholesale business because it is tailored to monitor and track inventory. People  use the matrix mode to drill down into granular layers of the data, allowing salespeople to view margin by customer and by product in many different ways. This information helps guide optimal sales strategies and influence product mix decisions that support growth.

    1. Know and analyse gross profit margin by product and customer

    A data analytics tool allows a business that sells many products to stay up-to-date with overall profit margins. You can measure them across different business divisions, product categories, suppliers or customer categories according to your wholesale business operations. This way you can identify loss-making items, low margin as well as profitable products.

    2. Benchmark your customers by profit margin

    Now determine a benchmark within your customer group. What is the desired gross profit margin per product per customer? Once this is established you can automate the benchmark and set-up alerts, if the product falls below the benchmark then the sales people will receive and email advising them of the situation. 

    You can then develop sales strategies for different classes of customer which may include increasing prices for some customers.

    3. Reconsider discounts

    Before you opt to discount, consider the ramifications to your margins in doing so. If you discount a product’s price by 10 percent, you need a 25 percent increase in sales of that product to achieve the same result. Discounting drastically affects the bottom line so ensure your sales team know this too.  A sales team needs to understand how much harder they need to work to justify discounts or the negative ramifications of a client not meeting the agreed volumes to justify the discount.

    4. Find opportunities within your data 

    Data analytics tools like Phocas allow sales managers to spot a number of opportunities within their sales, product and sales rep data so the relationships with customers are more strategic and focused on value.

    Take for instance this example where a lighting business can work out the average ratio of sales between two product groups with strong profit margins using the matrix tool in Phocas. If a sales rep is not reaching the benchmark sales figure of the two products with their customers, then this is a great opportunity to provide good customer service and get in touch with these other customers and sell them more of the companion products.


    5. Use your data insights to compete rather than defaulting to price

    Many companies are finding that maintaining the cost of their products works well if they provide a superior customer service. Customers are happy to pay more if everything they order comes on time, in the right quantity and the reporting is clear. Companies who are on top of their data, usually by investing in a data analytics solution, are the distribution companies who are staying competitive and finding new ways to innovate.

    To learn more about how wholesale distributors are turning to their data insights to increase margins download this ebook: Data-driven inventory optimization

    Written by Phocas Software
    Successful Business Intelligence - Phocas Software
    Successful Business Intelligence - Phocas Software
    Phocas - The future of distribution v 1.4_Page_01

    Increase profit margins in distribution

    Download eBook

    Related posts

    What is data discovery?
    2 MIN

    “We are drowning in information but starved for knowledge” according to best selling author, John Naisbitt.

    Collaborative FP&A – a Q+A session to understand...
    5 MIN

    The kind of analysis FP&A teams provide has long been about financial data.

    Chairman’s statement - FY2021
    3 MIN

    The financial year ending 30 June 2021 marked a most eventful and exciting year at Phocas Software. 

    Subscribe to our blog

    Sign up to get the latest news and insights from Phocas experts