The comedienne Joan Rivers often began her routine with the question, “Can we talk?”  She would then begin discussing more common place occurrences in life as it affected her. (Take a look at this interview where she explains where the phrase comes from and shares that it was her way of being “honest”)

May I ask the same?

What’s the Price in Your System — and Does Your Team Understand Profit?

Or are they more concerned with “their” margin as it ties to “their” compensation?

When distributors hide acquisition cost to protect margin, the strategy only works if salespeople, branch managers, pricing teams, and manufacturer reps understand what the system price really means.

It is commonplace in our industry to protect margins for distribution by hiding purchased costs in their systems. The practice actually benefits not only distributors, but manufacturers as well, because we are all in agreement that profitability is the single most important reason for being in business. If distributors are not profitable, our relationship is short lived. Likewise, true costs are not the purchased cost, but the price plus what expenses occurred to sell and maintain the product. In interviewing many distributors, when purchased costs are available product is sold at lower margins.

Years ago, every distributor seemed to put material costs into their system and let their salespeople determine margin. The definition of “material cost” changed by distributor. It could be the acquired cost. Could include or exclude rebates. And a multitude of other dynamics. Then distributors decided to “hide” the acquisition price and put a higher “cost” into the system. And then they got more sophisticated with their price matrices.

Meanwhile, experienced salespeople knew how to “work” the system to see an acquisition price.

For many years, and even with some distributors today, salespeople have the ability to review costs, sometimes negotiate a buy for their customer, and a determine their margins. In other words, the wild wild West.

More, shall I say, professional distributors have eliminated this process and have professional buyers and pricing teams where everyday material pricing to the customer is set. And salespeople are expected to sell unless a price override is approved.

But there are some distributors where salespeople know how to still get around the system. Should we call these “experienced” salespeople? Old-timers? Creatives?

I understand and agree with this practice of setting price, however when this implementation is not communicated well, and managed or understood by employees, there is a negative impact by employees against manufacturers and their salespeople feeling those manufacturers inventoried are not able to be competitive.

Essentially, management has decided which lines to support but a branch manager or salesperson wants a lower cost for a specific customer, so they solicit a quote from a non-stocked manufacturer.

Allow me a few examples …

When Distributor Sales Doesn’t Understand Company Pricing Strategy

When the Rep Gets Blamed for the System Price

1. A representative for a higher profit tool manufacturer had a meeting with sales and marketing management at a distributor with the intent of showing new products that he wanted them to add to their inventory. This distributor had very active counters and was essential to the efforts of the representative who had set displays, actively participated in counter days, and made joint calls. The distributor’s VP of Marketing thought the new products would do well; however, he was reticent to add them as he explained the profit margin for the manufacturer was lower than desired. This was unlike anything the rep had experienced, so he met with the owner who explained that tools were a product his contractors could not charge to their customers, so he purposely kept margins for tool products lower to attract more contractors to his counters. A strategic decision for the distributor, but one that inhibited his staff from carrying a new product that could generate sales and serve the contractors. What do you think the manufacturer rep did? Yes, there was a distributor across the street.
2. A distributor complained that a competitor could sell the product he was stocking under his cost. He contacted the rep complaining. He had an invoice from a customer showing their cost from a competitor. The rep met with him and showed that his cost from the manufacturer was well below what he showed. Management had decided on a 20 plus percent add to their cost from the manufacturer. The owner promised to review adds with his manufacturer prior to implementing them in the future. Previously these decisions were the responsibility of his pricing  people, who admittedly had little sales experience. The assumption was that the competitor was buying significantly better … which was incorrect.
3. Many distributors compensate outside and inside salespeople based upon margins between selling price and computer costs. At one distributor their salespeople were found contacting manufacturers directly for pricing to improve their income rather than relying on products that were already in stock. This also allowed for bad feelings between sales and manufacturing because the salespeople felt the rep and manufacturer refused to be competitive. A rep told me he sold more product to this distributor by not being their stocking manufacturer! The distributor people were less likely to travel and promote the stocked manufacturer. After meeting with the distributor management and explaining the situation, distributor management became more involved with allowable manufacturers outside their system.
4. A regional distributor manager called a representative for a meeting to discuss one of his manufacturers. This distributor was the rep’s largest customer for this product line. Concerned that they might be in jeopardy of losing the business, he asked his manufacturer to be in the meeting. This distributor complained that his branch managers were not making enough profit on the line and gave their extended discount away. He suggested taking the extended discount away from them and changing it to a cash discount. His people could not identify it, and any issues with payment would be addressed. Everyone benefited.

In my opinion knowing how your product is sold, and how all could benefit more (profitably) is often as important long term as the initial sale itself. The manufacturer rep becomes an asset to his distributor as part of the total process. Caring about distributor and manufacturer’s profitability must be the number one priority for longer term success and gaining trust.

What was evident in each scenario was that distributor salespeople are not informed about their management’s decisions and issues escalate to the rep / factory discriminating against the distributor. In reality, it is distributor internal decisions.

As distributor consolidation continues reps are seeing companies refining their processes and standardizing them but frequently not communicating the “why” well nor having an internal escalation process to address opportunities, issues, or discuss issues (with sales’ input.)

A distributor told me that when he purchases commodities, he often favors those reps that will fight with their factories for him when necessary, and also those that honestly relate to him when they are not being competitive or they are unable to deliver. He said too many reps only push them for what they need rather than what might be better for the distributor.

I asked a significant contractor what the best sales call was that he remembered so I might learn what was important. He commented that a manager of a distributor he was doing business came in with his salesperson one day and thanked him for his business. He then asked what they could do better and what the contractor’s needs were that no one else was providing.

SALES 101 of course, but how many of us are doing it?

SEO and Creative Recommendations

Supporting keywords: distributor profitability, pricing matrix, manufacturer rep, margin management, acquisition cost, branch sales pricing, distributor sales strategy.

Meta description: