Opinion – Making your profitability number for 2023 might require some mid-year adjustments

When we started 2023 the still climbing supplier prices made for another perfect storm of climbing profitability for both HVACR distributors and manufacturers. For many in the channel making 2022 profitability numbers is going to require some mid-year adjustments to the 2023 plan.

The price increase wave has crested and when you couple that 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 lower on price.

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 on July 19th. It’s a virtual event.

The MDM and Dorn profitability summit is 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 higher (minimum GM% at the SKU level)
  • Strategies and Tactics to re-examine and monitor your Customer Specific Pricing
  • How to adjust your preferred supplier programs for the back half of 2023 to meet your incentive targets

These are just a few actions of many you can make to maintain margin and profitability that 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. For example – Putting in higher pricing floors may cause your temporary SKU count or direct orders to rise as your sales team may 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 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

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