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Price is the Best Profit Lever: SPA’s Message at TUG Connects 2018

SPA was once again the platinum sponsor at TUG Connects, the annual Infor user group conference. With breakout sessions covering everything from ecommerce to pricing to purchasing, the conference was an ideal setting to pass along some of the lessons SPA has learned throughout our work with our clients.

In his presentation on driving profitable growth, SPA’s vice president of sales, Robert Nero, shared four ways to improve a distributor's operating income: increase selling price, increase volume, reduce Cost of Goods Sold (COGS) and/or decrease expenses. Volume is often the first lever that many distributors reach for. Under pressure from customers to offer discounts, many distributors agree to pricing concessions because they think they can make up the lost profit with increased volume.

If you look at the math, though, this logic starts to fall apart. Increasing volume has a low impact on operating income compared with increasing pricing. Even more effective than reducing COGS, price increases are distributors' most powerful profitability driver. Distributors can use any combination of pricing levers to achieve increased profitability, but those that focus on the levers with the greatest impact – pricing increases and COGS reductions – will see the greatest positive impact to their operating income. Better yet, employ all four.

Pricing increases can be difficult to achieve due to special pricing agreement complexity, sales reps' reluctance to rock the boat and fear of customer push-back. SPA's pricing analytics combined with our negotiation training can help you set and get the right price.

Thank you to everyone who participated in SPA’s sessions at TUG Connects 2018 and for stopping by to visit us at our booth. Request a meeting today for help in making your business more profitable.

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