Achieving 2023 Profit Goals … Tactics at Profitability Summit

Were 2021 and 2022 the heyday of distributor profitability? Remember the times when suppliers had price increases and distributors benefited from higher gross margin dollars being generated for nominal incremental effort (aside from customers asking for material)? Remember, a 20% gross margin on a higher COGS results in higher GM$.

And, the best part … higher COGS represented higher rebate income.

But, as the song goes “what goes up, must come down.”

While prices haven’t necessarily dropped in most cases, they are not rising. Plus supply chains have gotten better which means more competition for comparable, if not lower, demand. Which means more price competition.

The end-result? The profit planned for by many distributors for 2023 is lagging forecast,

Or, in other words, perhaps the market is reverting back to its norm … relatively slow growth.

To help distributors consider their situation and, more importantly, ponder solutions, Modern Distribution Management (MDM) and Dorn Group, combined forces to offer distributors in many industries a free Profitability Summit.

This is a 6-hour online conference that is FREE.

No, you don’t have to block the day and watch your computer for six hours. Just register, view the agenda and then login for the sessions that are of interest to you. As to those other sessions, you’ll get a link to the recordings (and maybe you can share responsibility for reviewing them to others on your team.)

If you’re in sales management, branch management, category management, purchasing, pricing, or even senior management, you owe it to your team to review the agenda and register. I’m confident that at least one session will be worth your while.

John Gunderson, a senior consultant at Dorn Group, who was instrumental in helping Tom Gale and his team at MDM develop the agenda, shared his thoughts:

“When we started 2023 the still climbing supplier prices made for another perfect storm of climbing profitability for both distributors and manufacturers.

The price increase wave has crested and when you couple that with the slowing sales your sales team will likely be pulling the only lever they feel they have to make up for lost sales – going ultra- competitive on pricing.

Why is there such a focus on price in distribution? It stems from the simple fact that when a customer reaches out to you they most often know what they need for the project they are calling about.

So, changing how much a customer buys is hard, selling them products not on their P.O. is hard, but the one sales variable you can control is price.

Price is easy to change and going lower does often result in more sales.  You may not make enough margin to be profitable, but you can grow top-line sales quickly with a price lever pull.

It’s time to update your profitability playbook by learning from other manufacturers and distributors. I would recommend you sign-up for the upcoming Modern Distribution Management Profitability Summit on July 19^th. It’s a virtual event.

The MDM profitability summit is packed with case studies, best practices, and presentations from speakers, distributors, and manufacturers that will deliver actionable playbooks and programs that you can implement in your business to help make 2023 as profitable as possible.

The sessions will be filled with real world tactics and strategies you can use to maintain margins in a tough demand situation-

• The risks and rewards of resetting your floor pricing higher (minimum GM% at the SKU level)
• Strategies and tactics to re-examine and monitor your Customer Specific Pricing
• How to adjust your preferred supplier programs for the back half of 2023 to meet your incentive targets

These are just a few actions, of many, you can make to maintain margin that profitability that teams often take during economic slowdown periods, but they won’t be effective on their own.

We will dive into each of the risk and rewards of the strategies and tactics of each profit action. For example – Putting in higher pricing floors may cause your temporary SKU count or direct orders to rise as your sales team may find ways to get to the price they need to win the order.

It’s time to help your team try to find better first cost positions, improve your inventory management, and find ways to stay competitive and take orders off the street. It’s often a SKU-by-SKU street battle that you need to help your profitability team find ways to help the sales team during a time where the pressure to go lower will be high.

Your sales team may become desperate to get that slowing sales funnel moving with orders. Winning profitably is going to take a combination of strategic pricing moves like the above 3 steps backed by strong first cost and inventory profit improvement programs.”

Sounds like an interesting event.

Food for thought for manufacturers …

1. If you’re company imports / redistributes much, you are essentially a distributor (or a private label master distributor.) Many of these tactics may work for you.
2. Manufacturers should be aware of the strategies of their customers. I would suggest manufacturers appoint someone, or multiple people in time shifts, to attend the session and then do an information sharing session with your regional managers to inform them on the tactics that distributors may use … and what will be asked of you, the manufacturer.

Time is running out to salvage the year and hit your profit goals. While theoretically there are about six months remaining in the year, we all know that mid-November and December are slower months. Now is the time to, as they say, “make hay.”

And if you are dependent upon rebates and are goals are now longer stretches, it’s time to develop a strategy to hit your most important goals.

So, looking for profits? Sign up for the Profitability Summit. July 19^th.