By David S. Bauders, CEO SPARXiQ

As budgets are wrapping up for the year to come, it’s a good time for distribution executives to also consider what profit moves in the coming year will help them predictably outperform their budgets and attain elite financial outcomes. I’d like to share some of the initiatives that have made the biggest impact for SPARXiQ clients over the last year.

1. Prescriptive Selling: A distributor’s organic growth rate is a tug of war between new/growing customers and defecting/shrinking customers. The best distributors deploy sales systems to provide specialists in new business development, existing account management, and recovery specialists. They leverage machine learning to understand their supplier position with their customers, to match the right seller roles to the each assigned account’s current and potential future positions. Increasing new customer acquisition, decreasing defections, and growing wallet share and supplier position can increase a distributor’s organic growth rate by 7 to 10 percentage points.
2. Price Optimization: Moving beyond Cost-Plus, spreadsheets, wild-west pricing and pervasive overrides to price optimization tools consistently yields 200 to 400 basis points on stock-and-flow sales. The best companies systematically extract premiums on low-sensitivity customer/product combinations to apply to winning price-sensitive new business and projects, or to reinvest in acquisitions or new value-adding capabilities. A combination of analytical tools, focused sales training, and ERP integration is the key to a sustainable separation from competition.
3. Dynamic Cost-Basis Optimization: For companies that have tried and struggled to master strategic pricing, a good back-up plan is to extract premiums on low-sensitivity SKUs via dynamic adders to the cost basis used by wild-west sellers prone to cost-plus, peanut-butter pricing. Elite distributors do not show costs/margins to their front-line sellers. Typically yields 200 to 300 basis points on impacted revenue.
4. Contracts & Special Price Agreement Mastery: Seller-led contracts and special price agreements predictably produce significant profit leakage from poor contract strategy and execution. Too much of the customer’s spend has declared pricing (as opposed to price on request); sensitive products are missing from the agreements, leading to cherry-picking with competitors; and account pricing fails to move over time from aggressive acquisition pricing to optimized pricing as the relationship matures. Leveraging AI/ML and related workflow tools to optimize the vast, complex contract files is typically worth 100 to 200 basis points of profit improvement, in addition to growing wallet share.
5. Pricing Override Mastery: Pricing system overrides typically carry margins 1,000 basis points below system pricing, with many distributors suffering override rates of 25 to 50 percent or more — translating into 250 to 500 basis points of lost operating profit. A combination of optimized pricing structures, focused skills training, and ERP system guardrails leads to elite pricing capture.
6. Freight Recovery Mastery: In certain businesses where customer-billed freight is common, inconsistent freight recovery and a failure to capture dynamic freight premiums costs distributors leakage of up to 30 percent of freight expense. Leveraging freight optimization tools integrated into the ERP system can produce impact of up to 100 basis points on revenue.
7. Prescriptive Call Planning: Wild-west selling organizations that fail to provide their frontline sellers with prescriptive call-planning tools to optimize sales calls yield a profit roulette wheel that wastes 20 to 30 percent of call opportunities. Re-weighting calls in favor of high-growth, high-profitability account positions and guiding sales calls toward best-fit opportunities can significantly impact the company’s growth rate. With sales expense commonly 15 percent or more of sales, the leakage can easily range from 300 to 450 basis points.
8. Vendor Rebate Optimization: In industries where vendors provide significant customer- or project-specific cost supports and SPAs/rebates, distributors commonly leak up to 30 percent of their eligible rebate claims. Leveraging AI/ML, rebate optimization tools can identify missing, eligible customer/product combinations and under-supported rebate programs.
9. Sales Training Mastery: Sales teams that lack focused, buyer-centric, sales skills training predictably produce less prospecting/new customer acquisitions; lower quote conversion rates; and stagnant wallet share. Compared to bottom-quintile sellers, top-quintile sellers consistently deliver 10 extra margin points, 2x customer retention, and 6x share of wallet. Combined with prescriptive sales analytics, focused skills training can boost organic growth rates by 7 to 10 percent, while supporting a superior customer experience.
10. Sales Coaching Excellence: Beyond training front-line sellers, developing a focused sales coaching system to identify and remediate performance gaps can positively shrink the unwanted variability of seller performance above.
11. Sales Compensation Excellence: For most distributors, paying a percentage of GP dollars to front-line sellers is the standard. Lacking a robust sales methodology or sales operating system, their commission plan is essentially their only lever to guide sales behavior toward actions that accelerate growth and profitability. Identifying and deploying a comp system that truly rewards the small number of critical profit drivers can improve pricing, wallet share, and cost-to-serve/net profitability.
12. E-Commerce & Marketplace Mastery: Up to half of distributors’ customers (and sellers) are likely to retire in the next five to 10 years. A new generation of digital-native buyers brings new expectations of the buying experience. For most distributors taking the traditional e-commerce website approach, adoption stagnates in the single-digit percentages. New buyers don’t want to log in to five distributors’ websites, with multiple passwords and navigation pathways to get the materials they need to do their jobs. Leading distributors are embracing marketplaces and e-procurement platforms to streamline the buyer experience, lower cost-to-serve, improve speed, and minimize destructive pricing overrides.

In each of these competencies, it can be helpful to use a maturity model to assess your current state and the value of progressing to advanced states.

Elite distributors are formal or better in most of these competencies, with a commitment to adaptive or higher in at least half. Budget season inevitably brings needed focus to the details to effectively manage resources, but elite distributors spend more of their budget energy on identifying and planning the execution of the competencies that drive distinctive value creation and value capture in the markets that matter.