Issue link: https://www.e-digitaleditions.com/i/774819
22 FEDA News & Views volume or customer complaint, they bumped the same group by another 2 percent. By the fi nal month of their selling season, they had achieved the highest gross margin percentage in company history—over 2 points greater than the previous record. A s I travel around the country, I hear many distributors complain about competitive pressures and declining margins. While it's true that some of the squeeze comes from the markets you serve, let's face it, tough markets are a reality of doing business these days. So self-defeating state- ments like, "You don't understand; I'm in a really competitive market," contribute to margin stagnation or decline. Yes, I said it, you're doing it to yourself. The very best thing you can do for the bottom line is to renew your focus on gross margin enhancement. Many of you know me as the inventory guy. There are some great things you can do to optimize the inventory asset and these will defi nitely drive bottom-line perfor- mance. Equally, there are operational effi ciencies that will improve net-profi t dollars. But if you really want to kick that net into high gear, you need to create a wider gap between what you bought it for and what you sell it for. Here is the 2x4 to the back of the head: A 1 percent improvement in gross margin will often translate into a 40 percent improvement in net profi t. This is the kind of ratio I can get excited about. I've been doing a lot of this kind of work with clients lately. Over the last couple of years, more and more have been asking for assistance with margin enhance- ment. The approaches differ, but there are some com- mon themes. I thought it would be a good point of discussion to run through a few of them. Sensitivity-Based Pricing This particular approach requires that the analyst review a ranking of the most and least popular items in a location. This is only counting the number of transactions against an item rather than the quantity sold. This report is commonly referred to as a hits ranking. Since the company I was work- ing with was a single-location entity, it was fairly straight for- ward. The fi rst step was to rank the items on a spreadsheet. The basic premise here is that only the highest hit items are price sensitive. Everything else is an opportunity to raise prices. That is just how the company approached the exercise. In the fi rst round, it decided to raise the prices by 2 percent on the bottom 80 percent of the ranking. Relatively bold move here. When they received no dip in Gross Margin Enhancement It's Worth the Effort By Jason Bader, The Distribution Team Jason@Distributionteam.com continued on page 26