Custom Information Services (CIS)

Do Your Customers and/or Your Sales Team Dictate Complicated Pricing Structures?

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I was looking at one of our customer’s pricing structures this morning and was just amazed at how they jump through hoops to meet the demands of pricing for their customer base.  Why does pricing have to be so complicated?  Is it to beat out the competition? Is it to make the salesperson happy because he or she came up with some wild pricing strategy over lunch with their customer?  Is it because it just has always been this way so why change?  I have asked this question to many of our customers and prospects and I get those types of responses.  An example: The sales person agreed to give a customer special pricing if the customer buys 5,000 widgets the first and last Thursday of every other month. In addition, if the temperature is above 75 they get free freight.    This scenario is an easy example actually!  If you are in the distribution or manufacturing business you probably have complicated pricing so you know what I am writing about!

I do understand how sales and customers can drive pricing since I am in sales and I work with lots of prospects and customers.  However if you make pricing so complicated that your order entry team (or EDI) cannot enter the order correctly with the special pricing automatically populating the order and without cheat sheet post-its all over their monitor, then you could be losing money and doing a lot of credit and rebills.   Is your sales team communicating the special pricing and getting it entered into your ERP in a timely manner?  Can your ERP system handle your special pricing?  Can orders that do not meet a certain margin level be placed on hold and an automatic alert be sent to management for approval?

I hope that your sales team is on a commission program that keeps track of margin and they are paid based on margin and when the invoice has been paid.  As well, your commission system should keep up with credits or returns too.

Make sure your sales team knows the capabilities of your current ERP such as:

  1. Aggregate pricing by class or by product combination: I can get you a better deal if you buy 100 cases of vodka and 200 cases of beer.  (It is Friday today!)
  2. Total dollar amount of the order; If my customer exceeds 25K on an order then give them a 15% discount on the entire order or on just one product or class.
  3. Date sensitive pricing is designed to get a customer to buy by a certain date, like now.  This can bite you though since you have given the customer the perception that they can really buy at the discounted price at anytime.  I know a lot of software vendors work this strategy too much!
  4. Have multiple contracts for one customer during the same time period; select the best contract based on specifics.
  5. Wouldn’t it be nice to have your sales team look-up pricing and inventory from their mobile device?  Just have to throw that in there!  Take a look at this article and product:  http://distributionsoftwareblog.com/distribution-companies-go-mobile-with-erp/

If your ERP system does not handle the items in my list above then to remain competitive, I would strongly recommend that you try to find a Special Pricing Program that works with your ERP system.   Google or Bing your ERP name along with Special Pricing.  You may be surprised to find something that will work for you or contact your ERP partner and ask them.  If they tell you there is nothing, do not give up, search the Internet first.

Make sure your commissions are calculating correctly.

Perhaps you should monitor the reports for a couple of months that is if you are not doing that now… make sure margins are high enough for the payments and that credits are being deducted on future commission statements and checks!  Same advice as in the paragraph above in searching for a good commission program if your current staff/ ERP system takes days and days to get the right commissions calculated.

Check margins on each line item or at least by order total.

Some companies only care about the margin on order totals not by line.  If you cannot see margin by line or by order total, get an alert so management can approve the order or not before product ships then I would suggest you change your ERP system out completely. 

Let your sales team know you verify margins on orders, deduct returns or credits from commissions and do not pay your salesman until you get the check from the customer.

I would welcome feedback on this article!

By Nancy Phillippi, Dynamics GP Sales Consultant in North Texas at Custom Information Services (CIS). CIS caters to distribution and manufacturing companies with Managed IT Services and ERP solutions including SPECIAL PRICING and COMMISSIONS!

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