The distribution industry relies on performance metrics within a few specific areas to drive revenue each year. Metrics provide a data-driven knowledge of where the business is excelling, compared to where it needs improvement and strategic decision-making. The five areas for distributors to drive revenue in 2022 are: Profit Margin, Inventory Management, Sales Performance, Expense Management, and Customer Management.
Despite how important it is to monitor performance metrics within the areas above, organizations often fail to reevaluate and adjust their metrics regularly for industry changes or world events that eventually affect operations. The Covid-19 pandemic is a perfect example as it has caused shifts in the supply chain and distribution landscape. Some performance metrics no longer apply while others are now even more important.
Let’s explore the five areas for distributors to drive revenue in 2022 & their performance metrics further:
- Profit Margin – Start tracking supplier cost increases to determine if your distribution company needs to increase your pricing to achieve better profit margins. Evaluate it each month (in some cases weekly) instead of quarterly or annually as was the norm in previous years. The data will lead you to establish the right price point for each customer so that you can realize revenue growth.
- Inventory Management – There’s no denying inventory shortages exist today. It’s how you handle it that makes all the difference. Set aside inventory for your loyal customers now, and keep a keen eye on inventory and pricing by monitoring both closely. Many distributors rely on Gross Margin Return on Investment (GMROI) to evaluate sales by the cost of goods sold and the average inventory cost to determine the overall financial return on your stock. We can’t stress enough the importance of understanding product line pricing and profitability performance from an inventory viewpoint. It will help you determine where you should make your future inventory investments. At the end of the day, you can’t afford to sell your inventory at below specific percentages.
- Sales Performance – Your B2B customers demand a great customer experience, so be sure you always go above and beyond and show up with the valuable information they desire. Help them transition to digital channels – you’ll know your company has succeeded by tracking the percentage of eCommerce sales. It’s also a good idea to individually analyze sales rep performance which presents your management team with a transparent view as to who’s actively contributing to the company’s overall growth and revenue.
- Expense Management – With so much disruption to the supply chain, keep track of expenses early and often. Costs needed to achieve top-line growth should be analyzed closely. This diminishes surprises on your Profit & Loss statement. It’s no longer relevant to track backorder time, but instead every expense your business incurs.
- Customer Management – Returns were once one of the biggest factors in customer management. However, this is not an issue today because it’s difficult enough to receive inventory promptly, making it rare for customers to return items. As a distributor, you should now be paying more attention to those customers that have increased purchase volume due to supply chain issues with their primary distributor. You should know how to price them, considering they may leave after the supply chain crisis resolves itself.
With over 30 years of experience, our NSA team of experts will guide you on which ERP software is best to improve your distribution business efficiency and drive revenue in 2022. We’ll make sure you’re data-driven and regularly evaluating key metrics within the five areas for optimal success. Contact us today at (516) 240-6020 or http://nsacom.com/get-in-touch to be on your way to a successful year of efficiency, growth, and increased revenue!