Top Ten Problems Solved by SAP Business One in Wholesale
Problem #8: Pricing & Margin Control Issues in Wholesale Distribution
This is the eighth in our series of blogs highlighting ten problems commonly found in the wholesale sector. In our last blog, we examined issues resulting in poor customer service. In this article, we focus on pricing and margin control.
The problem
For many SME wholesalers, the biggest problem is not pricing per se but the inability to see the true margin impact of pricing decisions in real time.
And the cause of this problem?
The main culprit is, as always, disconnected systems, manual processes and software that is not fit for purpose. Entry-level systems such as Xero and Sage 50 may be OK when you are just starting out in business, but they can be a brake on growth. They aren’t designed to handle large catalogues of items or large volumes of transactions. They don’t cope well with complexity such as multi-entity accounting. And good luck integrating them with eCommerce, 3PL and so on.
Poor visibility prevents proper managerial oversight and erodes margins, as in the following examples:
Uncontrolled Discounting
One of the biggest margin leaks occurs when salespeople have too much discretion. “Special” discounts become routine. Different customers receive different pricing for the same products. Starved of accurate and up-to-date information, sales teams focus on revenue rather than gross profit.
Poor Cost Price Management
Many wholesalers fail to update selling prices when supplier costs change. This may be due to the difficulty of updating those spreadsheets you rely on. Or it may simply be that importing a new catalogue into Sage causes it to crash. Whatever the cause, the effect is the same: the prices you are selling at do not reflect recent changes and since prices nearly always go up, your margins are squeezed.
Limited Visibility of Customer Profitability
Many SMEs know revenue by customer but not true profitability. Missing information often includes:
- Delivery costs
- Returns handling
- Credit costs
- Sales support time
- Rebate commitments
As a result, the “best customers” may deliver the weakest margins. Your high-volume customers may actually be loss-making.
How SAP Business One improves pricing and margin control
SAP Business One transforms pricing and margin management from a reactive process into a proactive one. With SAP Business One, wholesalers gain real-time insight into costs, pricing, stock, and profitability, enabling them to protect margins while continuing to grow revenue. This combination of visibility, control, and automation helps improve both profitability and decision-making, as in the following examples:
Customer-Specific Pricing
Instead of relying on spreadsheets, businesses can use SAP Business One to manage multiple price lists, customer-specific agreements, volume discounts and special pricing rules centrally. This promotes consistent pricing across the business and reduces margin leakage.
Track True Landed Costs
SAP Business One improves the accuracy of product costing by incorporating costs such as freight, duties, insurance, and handling into inventory valuations. With SAP Business One there are no unpleasant surprises after the fact.
Protect margins at Order Entry
Sales users have real-time visibility of profit margins when creating quotations and orders. Alerts and approval workflows can also be configured to trigger when margins fall below acceptable thresholds. This combination of improved visibility and alerts prevents excessive discounting and promotes pricing discipline.
Learn more
These are just some of the ways that SAP Business One could help your wholesale distribution business. To learn more, take a look at the other blogs in this series. Alternatively, download a copy of our SAP Business One Beginners Guide – Wholesale.
In the next blog in this series, we examine the ramifications of limited vendor management.
By Edward Bentley