Price increase alert
The Producer Price Index (PPI) climbed 10% in 12 months through February 2022. In line with economists’ expectations, the Consumer Price Index (CPI) shot up 7.9% during that same period. Further, this represents the most significant year-on-year CPI increase since January 1982. In fact, with the CPI north of 6% for five straight months, distributors, like everyone else, are feeling the pinch on profit margins. Much less, to offset higher costs, many distributors and their suppliers announced multiple price increases in 2021. Thus, as inflation continues, these price adjustments need to continue in 2022. Charging for value-added services is an excellent way to accomplish this more palatable to your customers.
Value-added services strategy
Second, I find that most distributors believe their value-added services are essential to their competitive advantage. Yet most do not adequately monetize these services. You need to develop a reasonable strategy for charging for value-added services. Examine the services you provide, especially those customers won’t receive from digital online channels. Determine which of those services are revenue producers. Put a price on your value-added services and incentivize your sales team to pitch these services to customers.
Vet your services list
A typical list of value-added services includes repairs, technical support, customer training, engineering/design, on and off-hours delivery, loaner/rental equipment, installation, assembly, and stocking.
You can prioritize these services by gaining from these three attributes:
- How important is this service to customers?
- Are customers willing to pay for this service?
- How well do we perform (or could we perform) at delivering this service versus our competitors?
Price your services
A survey was conducted in 2020 by the Distribution Strategy Group, which found that two-thirds of respondents do not pay commissions for the sale of services. Moreover, with many distributors bundling value-added services into product prices, there is no way to pay commissions on services or incentivize their sales. Consider taking value-added services out of the bundle and charging for them. Your bottom line revenues will grow faster than you think.
Furthermore, if you are not already doing so, charge all non-contract customers for added-value services. Use this to offer reduced charges for signing new contracts or renewing existing contracts.
Offset rising costs
Finally, implement or raise your charges for value-added services to offset the revenue loss. For example, these services can differentiate you from your competitors, particularly those in digital channels. To maximize the value of added benefits you provide, it is essential to price them accordingly. Charging for value-added services is an excellent way to offset inflationary pressures in a manner that is more palatable to your customers.
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