As volume compresses, we all know that Price will be under pressure from your end customers. It’s time to revamp your profit playbook for the back half of 2023 with some old and new tactics.
When we started 2023 the new SEER requirements for equipment and still climbing supplier prices made for another perfect storm of climbing profitability for both HVACR distributors and manufacturers.
The price increase wave appears to have crested and when coupled 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 an HVACR 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 in July (see video below)
Our profitability summit will be 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 (minimum GM% at the SKU level) higher
- Strategies and Tactics to re-examine and monitor your Customer Specific Pricing
- How to Re-examine and reimagine your price profiles and strategies
These are just 3 actions of many you can make to maintain margin that profitability 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.
As one of my mentors Mark Sommers in distribution pricing once shared this analogy “Distribution pricing is like a balloon. When you work on improving one area and put your finger into the balloon, it will often just move the problem to somewhere else.”
For example – Putting in higher pricing floors may cause your temporary SKU count or direct orders to rise as your sales team will 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.
As always, we would love to get your feedback, so please feel free to comment below or reach out to me at john.gunderson@dorngroup.com
