95. Rusty Staub and Your Unequal, Margin Dollars

Big Data, Cost-to-Serve Math, Index, Line Item Profit Analytics, LIPA, Profit Analytics, WayPoint Analytics

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).

Hits and walks differ. A hit can score a runner from second or third base, and intentional walks to “open first base” make sense. But, “conversion weightings” now equate 500 walks to 325 singles. Rusty would be, today, higher paid with better odds for the Hall of Fame.

OBP bargain players are analytically gone. But, distributors still have analytical blind spots to exploit.

RUSTY’S WALKS and YOUR MARGIN-DOLLARS PER INVOICE                                          

Financial management values: “Sales, Gross Profit Dollars (GP$s), Margin Percentages (GP%) and Rebates”. But, sees all GP$s as being equally good.

Below are two accounts from a distributor’s customer ranking by Gross Profit Dollars (GP$s), which looks juiciest?

Account #1: Sales: $70,296; GP$s: 20,386; GP%: 29%

Account #2: Sales: $77,020; GP$s: 15,404; GP%: 20%

Account #1 is clearly the Hall of Fame winner: bigger GP$s; a fatter GP%; and solid rebate volume. But, wait! #1 had 377 invoices for an average of only $54 in GP/invoice. After developing a “Cost-To-Serve” model, the average order cost for #1 was $140 generating a net-profit loss of ($32,422). Rebates from #1’s sales won’t dent this loss.

Account #2 had nine, direct-ship orders that averaged $1711 in GP$s/invoice. The CTS $s per invoice was about $300 for a net-profit of 12,699 (or 16.5% of sales). So, what now?

CONCLUSIONS

Don’t use only financial numbers. Order size and order fulfillment costs count big time. How will you:

  1. Keep, grow and win more customers like #2?
  2. And, turn losing accounts into winners?

Easy: request a free copy of my “Core Renewal Roadmap” (bruce@merrifield.com)