Five ways to increase profit margins in distribution

Keeping a close eye on profit margins is crucial for any distribution business, but outdated reporting systems and limited visibility can make this difficult. While revenue might be climbing, the true picture of profitability can remain out of reach without clear visibility across your data. When gross margins are overlooked, sales strategies can take a wrong turn, potentially costing more than they return.

BI and Financial Planning platforms like Phocas help distributors and wholesale businesses improve inventory management and closely track key retail metrics. This is primarily achieved through fast, easy access to real-time data across every aspect of your business, from operating costs, to inventory to sales, as well as flowing that information across financial statements, budgets and forecasts.

Let’s explore how better data visibility helps increase distributor profit margins

1. Know and analyze gross profit margin by product and customer

A self-serve BI tool will enable you to track gross profit margins across various dimensions of your business. Whether it’s by different products, retailer, or region, salespeople can easily drill down into granular layers of the data to view profit margin in many different ways. This information helps guide sales strategies, influences product mix decisions and is key to optimizing your operating expenses.

Take dead stock, for instance. A new product that starts as a bestseller can quickly slow down due to reasons like seasonal changes, market shifts, or more competitive pricing from another wholesale business. Without a clear, up-to-date view of your sales volumes, it can be difficult to spot this downward trend before it impacts your profits. With access to consolidated sales and inventory data, you can spot declining trends early and take corrective actions—such as adjusting the suggested retail price, redistributing stock, or engaging with your salespeople or retail customers to understand what’s driving the drop.

2. Benchmark your customers by profit margin

Once you have a clear view of your profit margins, setting benchmarks can help ensure your profit margins stay intact. With smart analytics tools, you can set up automated alerts that notify your team whenever different product categories or customers fall below wholesale profit margins. This not only helps in avoiding margin erosion but also keeps your sales team focused. Enabling them to adjust their approach—whether that’s revisiting pricing strategies or discussing rebate incentives or exclusive deals with customers—to ensure you’re still operating within profit margins.

3. Plan inventory wisely with integrated forecasting

Inventory management and planning is a delicate balance and getting it wrong can be costly. A BI and FP&A solution pulls all your data—whether from ERP systems or external sources—into one place, making inventory analysis faster and easier for everyone involved. Accurate demand forecasting becomes much simpler when you can compare sales history, seasonal trends, and purchasing data altogether.

When you have a full picture of your stock levels and sales trends at your fingertips, you can ensure optimal inventory management. That means knowing which products to replenish, which to liquidate, and which to move between warehousing locations to better serve customers. Plus, as the year plays out, you can compare live sales data to inventory forecasts and make adjustments based on changing market conditions or supply chain disruptions. This foresight minimizes excess stock, reduces carrying costs, and improves cash flow.

4. If discounting, look at the bigger profit margin picture

Before making hasty discount decisions, it’s worth considering the ramifications to your distributor margins. If you discount a product’s cost price by 10 percent, you need a 25 percent increase in sales of that product to achieve the same result. Discounting drastically affects the bottom line so ensure your salespeople know this too. A sales team needs to understand how much harder they need to work to justify discounts or the negative ramifications of a client not meeting the agreed sales volumes to justify the discount.

5. Find opportunities for higher profit margins within your data

Your data is more than just numbers—it holds the key to new opportunities. By analyzing trends in customer behavior and product performance, you can spot potential areas for growth. Perhaps one product in a specific region is underperforming compared to similar markets, or maybe there’s a complementary product that customers should be buying more of.

Take, for instance, a lighting distributor of seasonal products like holiday lights. With sales analysis tools, you can track the ratio of complementary product sales (like extension cords) across customer segments. It's easy to view the data by sales rep or retail store to determine those that aren’t meeting these benchmarks. It’s easy to then add commentary for the sales rep within the specific customer data to highlight a potential opportunity to up-sell or cross-sell additional products. This helps improve customer satisfaction by being proactive to their needs while boosting profit margins. It also enables sales managers to stay up to date with the individual performance of their salespeople.

6. Use data insights to ensure high quality service

In a competitive market, it’s tempting to slash markups to win business, but offering excellent service can be an even better business model. Think about it: customers are often willing to pay a little more if the service they receive is always high quality.

The Phocas platform has been purpose-built for wholesale distributors and retailers. It provides them with fast, easy access to up-to-date data like inventory levels and delivery on time and in full (DIFOT) metrics.

By tapping into real-time insights on stock levels and sales trends, you can make sure the right products are in the right places at the right times. Not only does this improve your ability to meet demand, but it also helps you proactively manage your supply chain. If a supplier is consistently delaying shipments or missing deadlines, you’ll see it in the data before it becomes a bigger issue.

When your business consistently delivers in full and on time, it builds trust with customers, making them far less likely to look elsewhere. They’ll know they can rely on you, not just for great products but for seamless service, too. And that’s something your competitors can’t always match, no matter how much they discount.

Data-driven decisions lead to higher profit margins

Access to consolidated, up-to-date data can mean the difference between profit and loss. A combined BI and FP&A solution allows you to not only track and analyze what’s happening now but to also plan for the future. By identifying potential issues early and leveraging insights to drive smarter decision-making, you can ensure your distribution business stays competitive and profitable.

While keeping profit margins intact may seem like a constant battle, the right tools will help you stay ahead, spotting trends before they become problems and capitalizing on opportunities before your competitors do. Whether it’s inventory management or building stronger customer relationships, smart, data-driven decisions are your best asset in growing profit margins.

To learn more about how wholesale distributors are turning to their data insights to increase margins download this ebook: Data-driven inventory optimization.