175. Melting-Unicorn Wisdom for Distributors

Unicorn Melt-Downs?

Valuations for WeWork, Uber, Blue Apron, etc. have been tanking. They all prove that a company’s business service-cost model can’t spend more costs on a unit of activity than the unit’s margin-dollar content, and then make it up on volume.    

The same economic reality hit many retail dotcoms back in 2000. Remember eToys? In ’99, they were averaging $20 in margin per order while spending an all-in cost of $300 per order for fulfillment.

“Positive Unit Economics” is Now Cool

(10-3-19) Bird, the electric-scooter company, announced that it had raised another $275MM at a $2.5B valuation, bringing total funding to about $700MM. The CEO stated: “Positive unit economics is the new goal line….we pivoted from growth to unit economics”.

Bird’s smallest building-block, “economic unit” is a rental ride. Here’s what they must do:

  1. Create a Cost-per-ride (CPR) model to figure a “profit equation” for each ride:

         Margin Dollars (less) CPR dollars = Profit/Loss Dollars per ride.

  1. Add up rides to rank customers, neighborhoods and cities by profitability.
  2. Determine the root causes behind the hot profit and loss spots.
  3. Innovate to better feed the profit spots while fixing, exiting and/or avoiding losing spots.
  4. Finally, aim their new, proprietary capabilities at spots that meet “hot-spot” criteria.

Pushing volume and ignoring variable costs per unit is sub-optimal, if not fatal.

90%+ of Distributors are In Good, Ignorant Company

Like “sophisticated” startups, most distributors don’t have “unit economics” for customers, orders or picks. Those who do, discover shockingly big profit and loss cross-subsidies amongst both customers and SKUs.

But, these insights can start a journey that achieves:

  1. Customer-centric, service-value improvements for best customers
  2. Win-win savings solutions for big, losing customers
  3. A new, profitable service-model for small losing customers
  4. Increases in personnel productivity and compensation
  5. Big boosts for sales, profits, and rebates.

Rent or Build Net-Profit Analytics?

Both the threats of, and opportunities for inventing digitally enabled service value and business/channel models are pressing. Building will take longer, cost more, and may be less effective than a monthly subscription service.

So What Next?

Be in touch for a free, initial consultation or a virtual tutorial for your C-suite on “unit economics” for distributors: bruce@merrifield.com. And, for a roadmap document on what to do with new, net-profit insights: CLICK HERE to download my “Core Renewal Roadmap”.

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