Five Ways To Improve Your Wholesale Margins
Wholesale distributors play a huge role in the British economy. Not only are they the backbone of retail trade, but they also provide employment to over a million people. But as those of you who run them know, you often face a challenging balancing act, as your success tends to run on tight margins and complex business processes across a sometimes-fragmented supply chain.
What can wholesale business leaders do to improve these margins?
1. Speed up your turnaround time – the faster you can make your order-to-delivery time, the less you spend on unnecessary storage of goods and the lower your overhead costs. Spend time with your ops team to map out your turnaround processes and systems; and then look for ways to make them faster or simpler. I find almost all businesses I work with quickly spot steps in their process workflows around fulfilment that they can eliminate, shorten or automate with the help of business process management and workflow systems. My team helped wholesale food distributor Ivan Wood & Sons to simplify its complicated pricing changes and eliminate invoicing errors by digitising these processes. The company imports food from countries around the EU which with rapidly fluctuating currencies was becoming increasingly challenging.
2. Focus on organic growth – acquiring more customers is always a good idea, but not at the expense on looking for opportunities within your existing customer base. Focusing on organic growth by selling more or different things to existing customers in one go, will potentially make a much faster impact on margins. Consider the best way to increase the average basket value for your customers. For some this may mean upselling richer offerings or cross-selling complimentary products. For others it could just be offering volume deals on larger units of purchase, or looking at increasingly popular retail models like subscription services as a way to upsell larger/more regular purchases.
3. Eliminate high-cost, low-margin customers or products – Not all customers are customers worth having. Some end up costing more than they generate; so it’s vital to be able to assess profitability and use this insight to determine your strategy to customer support, pricing, and so on with regard to the more and less profitable customers respectively. Accurate and timely reporting and job cost management tools are required to do this. With the data these provide you can review a margin analysis of your key products, services or customers to see which are the most and least profitable. And then adjust business strategy and focus accordingly.
4. Keep existing customers happy – Happy customers stay with a supplier, and replacing lost business is a notoriously expensive exercise. A smart business will do everything it can to keep existing customers purchasing from them. Sit down with your account management team to find out where the most common “drop points” are and how some extra love and care can be added. Something as simple as setting up auto alerts in a CRM system to ensure that account managers regularly check-in with everyone can make a big impact on customer attrition. And lower attrition rates mean less money wasted on filling in the gaps…and better margins.
5. Minimise scrap, spoilage and wastage – Nothing erodes profit margins like products going unused. If you find yourself regularly ordering more than you sell or having to throw away perishables before you’ve managed to get them out the door, it’s unnecessarily pouring potential profit down the drain. Burberry made the news last year for burning millions of unsold products to protect its brand. Real-time forecasting and business intelligence tools are a good way of ensuring scrap, spoilage and wastage is minimised; and profits maximised. A large shell fish distributor we work with in Scotland now uses real-time reporting and workflows to ensure it’s able to distribute its short shelf-life products throughout the UK and Europe as quickly and profitably as possible.
Every business wants its margins to improve, and looks to growth and larger volumes of sales to grow. But growing revenues doesn’t always mean growing profits and this really is the critical factor for wholesalers in the UK. Looking for the simpler incremental changes to existing business processes like the above can have a deeper, long-lasting impact on profitability.