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Five ways to increase profit margins in distribution

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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 Out-of-date reporting systems with little to no visibility beyond sales data can result in your business spending more money to sell products than they cost.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

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Written by Phocas Software
Phocas Software

Empowering businesses with intuitive data analytics, driving informed decisions for growth and profitability. We make people feel good about data.

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