How important is distributor price performance to your company? How important is price performance to your sales team?
Most manufacturing companies and wholesale distributors are focused on managing revenue and costs as the key profit drivers to their business. Typically, price performance gets mixed into margin somehow and fails to get the attention it truly deserves. If you are serious about managing pricing better, then the results of day-to-day pricing actions need to be visible. And, specifically, visible at the sales level.
While our pricing consultants see more companies compensating sales reps on profit margin it stops short of addressing pricing directly. If you consider the basic profit equation where profit equals sales unit volume times price minus cost, you can quickly see that sales teams rarely have the authority to control costs. However, they can control or at least influence sales unit volume and price.
So, why not reward their efforts based on sales volume and price performance? Using basic invoice data, it’s relatively easy to measure price performance. Simply use a historical price for each item to each account multiplied by the number of units sold and compare it to the same items to the same account going forward. Determine the difference in actual price realization and you will have a basis for measuring price performance.
As the old saying goes…”What gets measured gets managed”. Using a price performance measurement provides a metric to address performance with sales reps and reinforce the need for price performance improvement.