Expanding Your Margin Through Pricing Optimization

Price increases are a quick and simple way to improve your margin. 

But it’s not really that simple, is it?

• Distributors with tens of thousands of SKUs often have longstanding customer relationships with their own contracts.
• Pricing doesn’t always translate to higher margins, especially if costs are rising.
• If price increases aren’t done strategically and with value in mind, competitors quickly swoop in and grab market share.
• Distributors sell through multiple channels. If pricing isn’t consistent across those channels, that can lead to customer frustration.

However, if done well, pricing optimization will have less impact on customer churn than most companies think. 

The Cost of the Pricing Status Quo 

Historically, many distributors have leaned on cost-plus pricing or marking price as a certain percentage over COGS. The problem with cost-plus pricing is that it doesn’t always account for market conditions, competitors’ pricing, the real cost to service an account, fluctuating costs, and the customer’s price sensitivity.

The costs of living with this status quo and not optimizing pricing include:

• Revenue loss through under- or overpricing, especially when left in the hands of front-facing customer service or sales reps who may not have the data they need to make an informed pricing decision.
• Lower margins can come from inconsistent pricing across customers, channels, or even within a single account. 
• A default focus on price to win business, even in product categories where customers may not be price-sensitive.
• Inconsistent pricing leads to customer dissatisfaction and mistrust–and possibly churn.

Distributors must leverage their data to achieve price equilibrium: Highest possible price, lowest churn, and maximum margin expansion.

For example, the ProfitOptics Margin Express tool is a pricing optimization tool that lets you run transactional, dynamic pricing scenarios backed by market trends. Find and set (virtually unnoticed) increases that boost margin while minimizing the number of customers who leave you — potentially adding millions to your bottom line without much risk or effort.

Use Cases: Technology for Profit Maximization Through Pricing

Here are three use cases for technology to boost margins through pricing optimization:

A leading plumbing and HVAC distribution business realized its pricing practices needed to be more effective. But they needed help with where to start: They had 100,000 possible price combinations and were terrified about losing customers. They used the ProfitOptics tool to identify optimal price-change opportunities to maximize revenue while minimizing customer churn. The result: a 1.2% increase in gross profits, a streamlined proposal-to-approval process, and a formal price complaint review process to minimize customer dissatisfaction. Read more.

A Fortune 25 distributor was watching its margin dwindle in part due to rising inflation. The distributor attempted to increase prices by using spreadsheets and mass emails to its sales team of more than 1,000, but the effort fell flat. Instead, they used the ProfitOptics Pricing Platform to analyze and recommend pricing opportunities and increase accountability—a 4X increase in margin recovery compared with their independent effort. Read more.

A Fortune 150 distributor had over 1 million customers spanning 50,000 contracts and more than 1,000 vendors and sales reps to manage. There needed to be more data complexity for them to model and execute pricing optimization at scale. ProfitOptics helped the distributor use our pricing optimization system, reducing administrative burden and maximizing profit margins. The result was a $50 million recovery in annual gross margin. Read more.

Get Started

ProfitOptics provides customized technology to expand margins and optimize pricing while retaining or increasing volume. This includes addressing the complexities of handling vast product arrays and varying cost structures. Our solutions are designed to boost profitability even in the tightest margin scenarios. Reach out today.