How Industrial Distributors Can Increase Profitability of their Value-Add Services
Today's fluid power, motion control, and automation distributors provide value add services to differentiate themselves and compete against their big box rivals. These knowledge-based services are the backbone of their business and distributors should focus on the following factors to get the most out of their value-added services.
Don't Give Away Value-Add Services
Many distributors provide additional services such as estimating, service and repair of parts, and consulting and technical advice. Frank Hurtte, founder of River Heights Consulting - a firm specializing in knowledge based distribution - suggests that you be more careful about giving these services away. He states that distribution compensation policies (where commissions are mostly the norm) are designed in ways which almost encourage the freewheeling give away of service.
In his article, Why are distributors more careful giving away a $40 jacket than $400 in services?, he notes that sellers can give services to customers who buy on price without taking a commission hit. The same thing goes for tiny customers whose gross margin dollars barely justify the transactional piece of their business.
In both instances the distributorship may actually be both losing money and throwing costly services into the pot – thus accelerating a bottom line profitability drain. He suggests segmenting customers by size and profitability to the company, and then determining what group has earned your service.
Accurately Track & Manage Your Value-Add Services
Do you build power units, valve assemblies, pumps, hose assemblies or large OEM kits? Perhaps you do swap-outs or conversions on your products or send products to outside fabricators for additional services such as plating or welding.
If you fabricate complex system integrations, you include labor and burden into the price, but does your ERP system include everything that went into that assembly into the final cost? Are you keeping track of every component used (including damaged pieces and scrap), cleaning materials, hydraulic fluids, filters, welding supplies, and any special packing & shipping supplies?
Your ERP software should allow you to keep track of estimated vs actual costs so that you can precisely track project expenses and profit margins and more accurately quote future orders.
TrulinX ERP software by Tribute, Inc. can help you track and manage the components, sub-assemblies, labor, and burden in your complex fabrication and system integration projects. You will know where any component or subassembly is whether part of a work in process at a specific location in the warehouse or an outsourced fabrication.
Celebrate and Advertise the Impact of Your Value-Add Services
Tom Reilly, founder of Tom Reilly Training and an expert on value-added selling, says that companies should transform themselves into a Value-Added Organization.
In other words, a distributor must be in the business of creating value for everyone with whom it is connected. He states that you must conceive and communicate your vision for this movement.
And just as important, it's important to remind your customers about the value you deliver. Reilly states that no one gets the credit that he deserves; he only gets the credit that he asks for. Most customers are unaware of the value that they receive. This is why you must remind the customer of all the great things that you do for them.
Reilly says that positive bragging is an important part of this value-reminding strategy. A tasteful way is to remind the customer of the success that they have experienced because of your value. Brag about the customer's success: "Mr. Customer, it is great to see how you have increased productivity since installing our system. We're thrilled to play a role in your success."
We at Tribute also believe that you should be actively advertising your value-added services by including photos and videos with descriptions of your value-add services on your website, blog, and social media accounts. Write up case studies of the work you've done for clients so prospects can see the positive impact of your expertise and value-add services. This increases your SEO rankings and gives any prospective customers a good view of your industry expertise and the value you bring to the table.
Creating an e-commerce site, such as one by Aldrich Web Solutions' WebAlliance integrated with TrulinX ERP software, is another great way to advertise and sell value-add services along with your regular inventory.
Implementing programs and technology that focus on these three factors will significantly improve your value-add profitability.
Tribute, Inc. is a provider of ERP business management software for industrial distributors who provide value-add services. If you're a fluid power, motion control, or automation distributor who does fabrication and system integrations and needs to accurately track and manage these complex projects, check out TrulinX ERP software, designed specifically for distributors like you.