March 20, 2023
Let’s talk about a problem that’s plagued distributors for decades — finding the right way to increase gross margins.
The conventional approach is raising prices or convincing customers to buy more products. Both come with their challenges. For instance, having a conversation about raising prices with customers can be difficult, especially if the increase is substantial. If you tell a customer that you’re increasing the price by 10% of a cleaning product they regularly purchase, it’s silly to think they won’t look for a new supplier that sells the same product at their current rate.
Getting customers to switch to your products – or adopt a new product line entirely – can also be a tough sell.
What if there was another way to grow your profit margins that doesn’t involve increasing prices or convincing customers to buy more? There is. And it’s hiding in plain sight, overlooked by many distributors.
The key to unlocking profit growth lies in your product mix. By carefully selecting the right combination of products, you can drive profits without facing the challenges of raising prices or asking customers to make major changes.
A few weeks ago, a leader in the industrial distribution space told me about his struggle to get customers to switch to products with better rebates. Rebates were a huge deal for his company and represented roughly 25% of their profit.
With a quarter of the business’ income on the line, he and his team had to find a way to empower reps to convince customers to change their buying habits and purchase a new set of products. However, like many distributors, they didn’t have a streamlined way of doing this.
After our chat, I remembered a summer working for a distributor. They were on a mission to get their customers to switch to a newer, more profitable version of a specific product. The aim was to offer their customers a better experience while boosting the distributor’s bottom line.
The only problem was that they didn’t have a large enough sales team to reach out to each customer individually. In a perfect world, they would have a list of customers ranked by revenue impact so the distributor could focus their limited resources on the most promising leads.
It was an arduous process. Not only did reps have to juggle their usual daily responsibilities, but they had to squeeze in hours of research and calls. Plus, the method left little room for accountability. Managers didn’t know if their reps had qualified and called every customer. For high-revenue-potential campaigns, these tactics left too much up to chance.
When a quarter of your profit depends on your sales team’s ability to convince customers to switch products, you need a reliable system. Manually tracking progress and productivity will only get you so far. To run a truly successful product switching or product add-on initiative, you need the help of the right technology. That was one of our main motivators when we brought to the Product Initiatives feature in the Proton CRM to life.
Like the distributor mentioned earlier, have you ever wanted to easily switch customers over to a high-margin substitute to unlock better rebates or drive higher margins, but you didn’t know how to identify the right customers to contact and rally reps around the initiative?
Have you ever had a supply chain issue disrupt sales of a certain product and wish you could have prevented it by proactively steering customers to an in-stock alternative?
Do you wish reps would sell more add-on services on calls but don't know how to get them to pitch the right services at the right moment?
You’re in good company if you said “yes” to any of the above. A number of the distributors we work with have long been searching for a solution to optimize their product mix, but with little success.
But Proton’s Product Initiatives feature makes all of the above achievable. Distributors can easily phase out products, recommend higher-margin substitutes, and steer sales of add-on products and services, with visibility of each campaign’s success right in the Proton CRM.
Running replacement Product Initiatives in Proton makes reducing product churn easier and proactively encourages buyers to purchase different products to unlock higher margins, better rebates, or respond to an upcoming supply chain disruption.
As a sales manager or Proton admin, you can easily input your switching criteria into Proton.
For example, say you want to switch any customer currently purchasing Clayx Protective Gloves ($8.99 price, $2 margin) on a repeat basis to House-Brand Protective Gloves ($7.99 price, $3 margin). You would simply enter the product you want to replace with the SKU you want to replace it with, and Proton CRM would automatically alert reps about opportunities that align with your campaign.
In this instance, Proton would show sales reps who manage customers who order Clayx Protective Gloves a recommendation to talk to them about the House-Brand gloves – a win-win for you, the distributor is selling a higher-margin product, and the customer, who is saving a dollar per box of gloves.
Running replacement Product Initiatives in Proton helps direct sales reps to suggest complementary products and/or services. Just like the example above, managers can hard-code product or service add-ons for customers buying certain products.
For example, suppose you have a customer who buys HVAC units from you but doesn’t service them with you. In that case, you’ll want to prompt sales reps to offer a related service during their next customer interaction. Or, perhaps you sell conduits and want to make sure every customer buying conduits is upsold on conduit fittings.
Encouraging customers to change their buying behavior is challenging, but your profits depend on it. By investing in a CRM platform that understands your business needs, your team can run product-switching campaigns that are streamlined and successful.
Stories about distributors’ challenges light us up. We’re on a mission to make selling easier for distributors. If you want to share a challenge you’d like to solve, email me at firstname.lastname@example.org.