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Inaccurate pricing and mismanaged rebates are two of the top reasons’ food distributors lose revenue year after year. Unfortunately, most ERP systems don’t understand the unique complexities of pricing management within the food distribution industry. The price you charge for your products is extremely important, as it is your income source. It also determines how much profit you make. When selling your products, it’s important to charge a fair price, but it is equally important to ensure you’re hitting your margins. Offering discounts, promotions, and capitalizing on rebates can help, but if executed poorly, it may end up negatively impacting your bottom line. Here are a couple of strategies that can help.
Set up Classes
One strategy for food distributors is to set up your customers and items by classes and group them together in one unifying way. Take customer class for instance, define as many classes as you want but make customer class the one thing that makes sense. That way every customer gets into that class and then drive your pricing from that class.
But that is not all, you can take this to the next level very easily. You can also classify them by geography or on a loyalty scale. Maybe they’ve sold a bunch of stuff for you in the past, so you give them a top tier class status. There is a ton of flexibility and you can get as creative as you want without feeling trapped in the way you handle pricing with your customers.
Categorize into groups
One strategy to help simplify pricing is to categorize items into groups. After they are grouped, set up price filters so you’re filtering within the groups, minimizing the number of things you must set up. To put this into perspective, suppose you had three customer classes and you have 10 different Item Price Classes. Those 10 Item Price Classes may each have an additional cross product, which starts adding up to a whole lot of SKU’s and prices to keep track of.
Now let’s simplify grouping those classes!
For example: You have three customer classes; Gold, Silver and Bronze, based on their purchasing performance. Now let’s say you sell boxes of cake mixes in one of your Item Classes.
You may sell vanilla, chocolate and Funfetti cake mix, however they can all be in the Cake Class and be sold at the same price to your Gold Tier customers. Think of the time you save by only pricing the Cake Class, and not each individual cake flavor. By categorizing these classes into groups, you can now strategize a much more manageable pricing solution.
One Starting Point
Another strategy is to figure out one single starting point such as a price list.
We have price sheets which are inside of a price book. A price sheet simply means this specific item costs this much money. If you had just one list to manage, that list is your single source of truth which everything can be based on, it will simplify your pricing strategy with your customers.
When you have a single price book you can now add calculations and other price schedules from that one price list. As an example, you can create a secondary price sheet that is 5 percent more than your base price or 40 percent from that base. Either way, you’re only maintaining that single base price book. Everything else is just math on top of that.
Think about the time you’re saving by not copying and repeating all that information. It’s better to have one central source to generate your basic pricing from and use that to calculate percentages, discounts, commissions and more. No need to replicate a whole bunch of data.
Customers just love rebates! But rebates can be cumbersome and are hard to manage and track. Rebates are huge in the food industry, you get to collect a bunch of money upfront from a given customer under a certain scenario. That money might be five cents per pound or 10 percent off the MSRP.
Wouldn’t it be nice to collect that rebate, track it to the general ledger and tie it back to the invoice and customer? Tracking detailed amounts to specific GL Accounts will make it easy when it is time to pay it back to the customer. This can really help your bottom line. Not only will you save money but you won’t lose any as well.
Pricing strategies are useful for many reasons. Choosing the right price for a product will allow you to maximize profit margins, set the cost of a good or service at a low price to maintain your hold on market share and prevent competitors from encroaching on your territory. Whatever the reason Rockton Connect focuses on solving problems to help businesses thrive by connecting people, priorities and processes.
Written by Amiee Keenan, Director of Business Development, www.rocktonconnect.com