In the early ’70s, distribution trade associations started offering Financial Survey Reports to participating members. Back then, “financial management” was KING. You wanted to achieve the financial averages of the “Top Quartile” performers (even though those averages blended different strategy outcomes and the top 5% – true innovators – dragged up the average for the next 20%).
The reports evolved. New ratios like – GMROI, Turn-Earn, Personnel Productivity Ratio (PPR), etc. – all had their moments of fame. Analytics software packages started arriving in the ‘90s to slice, dice and graph “the numbers”. Because financial numbers and their derivatives are downstream symptoms of upstream, hidden, root causes for profitability, interesting data was not actionable for sustainable success.
Managing by the numbers for 40 years has yielded poor results. Many distributors were acquired by financial consolidators that –in turn – look, today, as potent as the “buying clout” of the Sears/K-Mart merger. And, the average, pre-tax return on total assets (ROTA) has slowly decreased as the percentage of sales that are commodities sold on price have increased.
How now do you escape from Commodity Hell? Gurus exhort: “Innovation”! OK. But, with what fresh: focus, metrics, insights and tactics? The short-answer: Use (1) a Net-Profit-Analytics, Tool Kit + (2) Customer-Centric, Service Models to do a (3) Profit Core Renewal.
In more detail: NET PROFIT ANALYTICS starts with doing cost modeling to calculate the estimate profit or loss on every line item even in your business. With this elemental information you can follow a pathway of tool creation and tracking reports that allow you to:
- Measure the big profit winners and losers that exist amongst your customers and stocked items.
- Find out the underlying root causes for the big wins and losses and new tactics to improve them.
- Identify the highly profitable and unprofitable segments of customers to then serve them differently(“Customer-Centric Service Models”)
Your PROFIT CORE is the intersection of sales of your most profitable (and popular/unprofitable) items to your most profitable customers. Using Net Profit Analytics and new Service Models, distributors are typically doubling sales while increasing profits 5-10 times with their core customers.
Unbelievable?! For more innovative, insightful wisdom: