Ian Heller and Jonathan Bein discuss their favorite profit-driving hacks for distributors:

Learn the power of 1%.

A McKinsey study from a number of years ago showed the power of 1% price adjustments. According to their analysis, a 1% increase in price, assuming volume remains steady, would generate an 8% increase or more in operating profits. What’s more, the authors point out that an increase in revenues at the expense of a price cut does not have nearly the same impact: Volumes would have to rise by 18.7% to offset the profit impact of a 5% price cut.

Push up prices on C and D items to small customers.

One powerful technique to gain margin is to increase prices on low-frequency C and D class inventory items for small customers. The premise of this technique is that small customers who purchase these items may not pay much attention to the price increase since they purchase them infrequently and do not have much buying power with the distributor. 

Avoid round markups or discounts.

So if you can do a 3.75% discount, instead of 5%, you just got another point and a quarter for your company. 

Centralize purchasing to buy better.

Centralizing purchasing improves your margin opportunity. Start by understanding what you’re buying and from whom, and build a plan to minimize one-off purchases from your team.

Make web pricing consistent with contract pricing.

The key here is to avoid a situation where the price your customers see online is better than their contract pricing, which could result in losing the customer. You can’t eliminate channel conflict, but you can minimize situations where your web pricing is better than your contract pricing. 

Put strategic purchasing agreements (SPA) in place with all suppliers.

Be sure to have professional purchasers in your organization who understand how to negotiate SPAs, a joint agreement between a distributor and manufacturing that includes rebates, marketing co-op and pricing terms. 

Learn how to get and take advantage of marketing co-op.

Consider having a category manager in charge of putting together a plan for co-op. Promotions that can be supported by co-op can be planned out months in advance.

Tie sales rep comp to gross margin percentage growth.

This is a powerful way to get alignment between what the company wants and what the reps are doing on the street.

Limit pricing authority.

Another best practice is for companies to centralize pricing authority; any movement in this direction is usually a win. Take pricing authority away from field sales reps as much as you can.