SPA Featured in The Distributor Channel article “Every Silver Cloud has a Dark Lining: Things to Consider in a Growth Economy” | Strategic Pricing Associates
“I believe a solid pricing process is an essential part of any strategic initiative. There’s three big reasons why:”
- Pricing Process drives bottom line results. The typical distributor using David Bauders’ Strategic Pricing Associates improves gross margin by two points. In some industries, this nearly doubles the bottom line results. For most distributors the gain is still in the 50 percent range. You can’t ignore this size of an increase.
- Company value is dramatically improved. Distributor businesses are valued on a multiple of bottom line profits before tax and interest (EBITA). Here’s a simplified example of how it works. A company putting $1M to the bottom line could be valued at 6 times earnings or $6M. That company increases the bottom line via pricing by 50 percent to $1.5M. Using the same formula, the company is now valued at $9M. Further, our research indicates companies with higher performance than industry norms often attract a higher multiple of earnings. So, the process may actually improve the value substantially more think multiple of 8, which means a value of $12M. Yep, pretty strategic.
- Processes in the sales department tend to interact. Building a credible pricing process requires detailed customer and supplier segmentation; marketing improves. Salespeople are forced to think more critically about the customers they invest time with. Targeting improves. And, sales teams with well-developed targets are 47 percent more effective in reaching their goals
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