Category Archives: Cost-to-Serve Math

102. High-Margin Counter Sales Aren’t Profitable!

This is one of the first insights that distributors who subscribe to Line-Item Profit Analytics are shocked to find out. Analytics reveal that:

  • Naturally high-margin percent SKUs and customers are mostly net-profit dollar losers
  • Gross profit dollars on small-dollar lines and orders are less than their cost-to-serve dollars

You can’t ignore small transaction size, or the variable service-people costs for customers with bill-me-later, paper-based trade credit. Continue reading 102. High-Margin Counter Sales Aren’t Profitable!

101. Case Study: Customer Names Price, OptiQuote Calculator Sets Terms

The Scenario

An industrial buyer asks a distributor CEO a question.

BUYER: “Can you beat my last year spend on 20 MRO SKUs? The grand total was $35K.”

CEO: “Well, it depends upon the average dollar size of your orders. We can do simulations with my OptiQuote calculator. The general rule is that prices drop with fewer, bigger orders. We pass the reduction in our line and order fulfillment activity costs on to you. And, on any given order prices will drop at both the line-item level and order-total level as the dollar totals increase. As a best-theoretical case, we could enter the annual SKU totals on one big order.” Continue reading 101. Case Study: Customer Names Price, OptiQuote Calculator Sets Terms

100. Distributors: Upgrade “Strategic Pricing”

The first step to ensuring your strategic pricing initiatives are successful is to understand what you’re doing. Here are a few questions to ask of yourself, as a business owner, and of your top management.

  • What is “strategic pricing”?
  • What is our Pricing Analyst’s job? (scope, objectives and success metrics)
  • What assumptions underlie these answers and is there data to back them up?
  • What additional analytics would improve pricing effectiveness?

If you find wildly varying answers, or confusion, from your management team it’s time to upgrade your approach to strategic pricing. Continue reading 100. Distributors: Upgrade “Strategic Pricing”

97. Bright-Spot Effectiveness Versus Busyness

Efficiency Versus Effectiveness

If efficiency is doing things right, and effectiveness is doing the right things (Drucker), then what are your existing most “right things”? Find out with a customer profitability ranking. Your most net-profitable accounts qualify as your best “right things”. So, why not assign a crack team to research how to take the most profitable customers and the best customer niches to the next level?

Are you and your colleagues currently too busy to spearhead new solutions for either super-winners or losers? You can google “Cult of Busyness” to address personal psychological issues.

Analytics helps you investigate how your company can get less busy overall in order to reinvest slack into your best accounts. What are your measurable wheel-spinners? Continue reading 97. Bright-Spot Effectiveness Versus Busyness

96. How to Be Strategic on Channel Rebate Management

Channel partner incentives, collectively and imprecisely known as rebates, are huge, addictive, and problematic programs for distributors. One 2012 survey estimated total channel incentives in the U.S. to be $55B. That’s 80% of the reported $69B in total channel management budgets. A Silicon Valley survey reported that the typical factory respondent ran an average of 21 incentive programs annually with an estimated overpayment of 6%.

Twenty-one incentives programs annually? Sure! Cash bribes get fast attention. Competitors understand indirect price cuts and can quickly follow, tweak and escalate with their own programs. But, without effective plans for disciplining, tracking—and in some cases exiting—these initiatives, what happens? Factory list prices generally keep rising as backend channel incentive checks multiply. Continue reading 96. How to Be Strategic on Channel Rebate Management

95. Rusty Staub and Your Unequal, Margin Dollars

UNDER-VALUED RUSTY: RIP

Daniel Joseph (Rusty) Staub passed on March 29th at 73. Rusty (Le Grand Orange) played 23 years in baseball’s major leagues retiring in ‘85. His career stats: batted in 1,466 runs; averaged .276 with 292 homers and 2,716 hits; and walked a spectacular 1,255 times. With walks, his career on-base percentage (OBP) was .362. He didn’t swing at bad pitches.

Rusty, a champ admired on and off the field, did not make the Hall of Fame. Baseball beliefs back then were still blind to the value of Walks. In 2000, the same Analytical Ignorance allowed the Oakland A’s to “buy runs to win games” cheap. They snagged free agents with superficial flaws, but high OBPs. (Well told in Moneyball: both the book and movie). Continue reading 95. Rusty Staub and Your Unequal, Margin Dollars