Cost Plus vs. Benchmark Pricing

Distribution Capacity
Many complain there is still too much distribution capacity in some markets, which means that businesses are continuing to use price as the determinate to get business. Some consider it taking market share. But is it really? Or are they just taking an order with low margins because they can blame it on the current market conditions and need the cash flow.
While cash flow is paramount for all and you need to continue to sell product, what if you could increase your rate of profit by making changes to the way you price products? Would that be beneficial to your company?
Sounds simple enough, but many think that changing pricing is a “big” project that disrupts their business. But still the first order of business for the majority is “let’s sell something”. No argument there. But, the way you develop a sell price may be limiting the amount of profit one makes.

The problem with “Cost Plus” prices
Many business executives grew up and were schooled on cost plus pricing as a way to develop sell prices.And many have lived and died by cost plus pricing. Distributors will openly argue that they are forced into cost plus pricing by the commodities they sell. Others say that cost plus pricing limits their profit opportunities. Share your thoughts below.

Benchmark pricing opportunities

Benchmark pricing has been around as long as manufacturers have published a “list” or “resale” price list. There are numerous studies and plenty of testimony that distributors do make more money discounting down from an established benchmark price. The amount of increased profit depends on the company and the processes they put in place.

Cost Plus and Benchmark pricing both require maintenance and that is where some fall into disrepair.

So as a distributor

• Do you see your sell price development changing from the Cost Plus method to Benchmark pricing with a discount?

• Or is it blend of cost plus for commodities and benchmark with a discount for Brand Name products?

And if you are a manufacturer, do you want to give a “Net into stock” as opposed to a discount from a “list” or benchmark price? Or do you prefer SPA’s as the choice to keep market value?