Mission Possible – Finding Incremental Margin

An unfortunate trend within the electrical distribution market is that gross margins either stay flat or the have been eroded. Reasons range from chasing business to “it’s what the market bears.” From selling more commodities or a change in business mix to more project-oriented or perhaps the competitive environment. Sometimes it is due to the compensation model … especially if salespeople are compensated based upon % of gross margin dollars (isn’t any gross margin dollar good? Why say “no” to business and stand behind your pricing!) Inevitably, it’s about chasing business.

Given that few distributors in the industry have a pricing model that is more akin to the retail segment (set pricing), this will always be a battle for distributors. It is like playing Wack-A-Mole. You also need to be watching margins and investigating how to manage / improve them.

Scott Sinning is a pricing expert. Formerly he was VP of Pricing Strategy for Graybar, so he knows a thing or two about pricing and retaining margin. Scott is joining the ElectricalTrends team and will be sharing price strategy tips in the coming months. He helps distributors investigate price improvement opportunities. In other words, he helps find margin dollars.

Where Margin is Hiding

Some of your biggest margin opportunities are hiding in core cross-functional processes

It’s that time of year again when budgets are getting finalized, sales teams come together for kickoff meetings, and supplier cost increases take effect. The annual planning cycle moves quickly from discussion and debate to “Let’s go and get it done!”

My goal for this article is to give distributor executives a strategic perspective on three areas where they can capture dollars hiding in plain sight.

In my experience, the quickest and most attainable margin opportunities come from improving a few cross-functional price and cost processes – which span multiple departments but are fully owned by none. These rely on manual handoffs and limited visibility to drive improvements.

Leadership attention on these processes can have a big payoff.

Supplier Cost Increases Passed Through to Price (January and Q1 focus)

January is when many manufacturers roll out annual price increases. How distributors respond often determines margin performance for the first quarter and sometimes the entire year. At the least, distributors should try to protect profitability by passing these into a new sell price. In some cases, it’s an opportunity to profit from the change and capture additional margin.

Cost increases fail at the handoffs between purchasing, pricing, sales, and finance. When execution breaks down, familiar patterns appear:

• Cost changes move slowly through internal systems
• Price actions lag cost increases
• Margin recovery varies by branch, customer or salesperson
• Leadership struggles to measure how effective pass-through really was

This leads executives to ask, “Did we really pass through the increases?”

More revealing questions include:

• Did we communicate the important changes with the sales team and with key customers to maintain trust, alignment, and purchasing volumes?
• Were price increase actions aligned with sales strategy decisions?
• Are GM% results measured before and after the change to detect leaks to fix?

Strong operators treat cost-change execution as a repeatable operating discipline, not a one-time event. And yes, there are automation and AI tools to speed things up once you know what your desired process flow should look like. The first quarter is when that discipline matters most. Delays and inconsistencies early in the year are difficult to recover later, especially once customer expectations are set.

Click here for a step-by-step plan

Price-Setting vs. Price-Getting

Reduce unjustified discounts that override the system price. Most distributors have an established process to set their prices, especially for standard SKU stock sales (directs and projects are a topic for another article). Far fewer are confident those prices are getting realized in the market.

This gap lives in the space between how prices are set, how exceptions are governed, and how performance is measured across teams. It shows up as routine overrides, delayed discount approvals, and pricing rules that exist but aren’t evenly applied. Over time, this creates frustration and friction instead of insight and accountability.

The challenge isn’t choosing between control and flexibility. It’s balancing both.

Sales teams need discretion and speed to respond to customer requests. Leadership needs confidence that exceptions are thoughtful, justified, and aligned with margin goals.

Well-run distributors use overrides as a sales coaching moment and feedback loop for better price-setting, not just a cumbersome approval step. The goal isn’t to eliminate discretion; it’s to create guardrails that improve decision quality without alienating the sales team or overwhelming frontline managers.

Special Pricing Agreements (SPAs)

The SPA process offers one of the clearest opportunities to capture margin and unlock trapped cash. CFOs love this one!

SPAs are often viewed as a sales and pricing issue. In practice, they are just as much about cash flow and operational discipline.

The SPA lifecycle spans origination through supplier negotiations, data sync, claims, reconciliation, and final settlement when the distributor finally gets paid.

It touches sales, pricing, purchasing, operations, finance, and sometimes IT – making it one of the most cross-functional processes in the business. When no executive owns the process end-to-end, two problems emerge:

• First, without holistic oversight, compliance complexity drives margin leakage.
• Second, cash gets trapped. Open and aged SPA reconciliations represent real dollars sitting in limbo, possibly for months, waiting on documentation, validation, or resolution. Many distributors underestimate how much money is tied up this way until it’s quantified.

Improving SPA discipline isn’t just about pricing accuracy. It’s about plugging margin leaks and accelerating cash flow.

The Bottom-Line Margin Opportunity

These are not isolated margin problems. They are cross-functional execution problems that sit between teams, not within them.

Margin grows when pricing and cost management are treated as operating model disciplines with clear ownership, defined handoffs, automation, and measurable outcomes. When that discipline is missing, margin doesn’t disappear overnight. It leaks through timing gaps, process breakdowns, and accountability blind spots.

That’s where the biggest opportunities are hiding, waiting to be found.

About the Author

Scott Sinning advises wholesale distributors on pricing strategy and margin performance. As former Vice President of Pricing Strategy at Graybar, he led enterprise pricing, software, and analytics initiatives and worked directly with the cross-functional execution challenges described here. Learn more at pricingfordistributors.com.

Take Aways

Scott’s insights beg the question of “who / what department is responsible for margin improvement?” Yes, much of this sounds like the basics of the business, but it is taking for granted. In a pennies business, fractions of a penny can go right to the bottom line.

One of the takeaways from last week’s NAED Western was that, for many distributors, if they did not win data center business last year their business would have declined. In fact, the industry may have declined. What does this mean for profitability. Are you focused on GM$? What are your key metrics (one should be GM$/invoice, and this should be tracked down to the branch and salesperson level … especially outside salespeople as it is also an indicator of selling your value.)

There are many areas where margin is leaked. Plugging those holes can help you deliver a better bottom line.