Rockton Pricing Management (RPM) is a flexible, powerful, multi-platform pricing solution used by businesses across various industries. In food distribution, a sector known for tight margins and complex pricing structures, RPM can be a game changer. Most often, our customers in this field use it to streamline cost-plus pricing, date-driven pricing, commissions, rebates, and more. Occasionally, they introduce us to new and innovative ways of utilizing RPM. Today, we’re sharing one of those unique approaches with you.
The Challenge: Tight Margins in Food Distribution
In the food distribution industry, companies have a deep understanding of their operating expenses, overhead, and desired profit margins. They know exactly what percentage margin they need to charge to remain profitable in a competitive market. One of our clients, operating in the food distribution space, has developed a unique pricing method that helps them maintain profitability while dealing with fluctuating costs.
Leveraging Range Costing Methodology for Price Stability
Instead of using current costs to set prices, this food distributor calculates an average cost that includes both stock on their shelves and incoming stock over the next two months. This approach, known as range costing methodology, helps them anticipate cost trends and keep their prices competitive despite changes in supply costs. It’s an advanced strategy that allows them to plan ahead and reduce risk in pricing.
Using Percent Margin vs. Percent Markup in Food Distribution
To determine their next price point, this distributor uses a percent margin technique rather than a percent markup. This is a critical distinction in food distribution, where small pricing errors can greatly impact profitability. For instance, many mistakenly add a 20% markup to an item that costs $1.00, setting the price at $1.20, which only yields a margin of 16.7%. Using the correct formula for percent margin—Cost / (1 – Margin Percent)—the price should actually be $1.25 to achieve a 20% margin.
Factoring in Rebates, Commissions, and Payment Terms
In addition to margin calculations, this client also incorporates rebates and commissions into their pricing. For example, they add broker commissions to the price and adjust for customers who take advantage of payment terms, like a 2% net 10 discount. Buyer group rebates are also factored in, ensuring that all these variables are calculated using the percent margin method, which further solidifies their pricing accuracy.
Complex Freight Calculations for Food Distribution Efficiency
Freight costs are another significant factor in food distribution, especially when shipping pallets or truckloads. Our client uses complex freight rules to ensure fair pricing based on shipment weight. As the shipment weight increases, they offer more competitive freight terms, which RPM helps manage efficiently.
How RPM Automates Pricing for Food Distributors
Fortunately, Rockton Pricing Management simplifies all these calculations and more. By updating their item costs, RPM automatically recalculates the final selling price using the pre-set margin, rebate, and freight rules. This ensures that the food distribution company can consistently achieve their desired percent margin, protecting their profitability.
Boost Profitability in Food Distribution with RPM
By methodically incorporating operating costs, rebates, and freight into their selling prices, our client can predict their core percent margin return, helping them maintain a steady bottom line. For companies in food distribution, having an automated and adaptable pricing solution like RPM is essential to staying competitive in a fluctuating market
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