Do you know who your year-over-year big profit swing accounts are? Here are some steps you can take to find your big profit swing customers in distribution. You may be shocked, but make small bets on them in 2017, and you might just get lucky.

1. Create a cost-to-serve model to compute customer net-profitability
2. Have two full years of history
3. For each account, subtract the profits (or losses) from two years ago from this past year
4. Rank all customers in distribution by the profit difference from highest positive gain to biggest negative loss (see the easy, how-to answer at the end!)

Typical Case Revelations

A $50MM distributor just closed its fiscal 2016 year with sales up 6% and profits 10% over 2015. Profit margin improved from 3.5% to 3.8%. They beat local and channel/industry growth rates by a few points.

Continue reading 44. Make Your Own Luck with Big Profit Swing Customers in Distribution →

Who Is Theo Epstein and Why Should You Care?

Hired in 2011 as the general manager (GM) of the Chicago Cubs, Theo Epstein rebuilt the team, bringing them from the cellar to the top of the game with their 2016 World Series win, and broke the 108-year-old curse of the Cubs. Before his Cubs turnaround, Theo did much the same for the Red Sox, helping them win the World Series in 2004 and 2007, breaking their 86-year old Curse of the Bambino. How did he do it? It’s well-known that Theo Epstein invented new analytical tools, metrics, insights, and tactics to create unheard of turnarounds in both teams.
Continue reading 43. Do You Have YOUR Theo Epstein for the Battle of Analytics? →

I was doing some prep work for a speech for the Health Industry Distributors Association (HIDA) when an item on their Members’ Financial Survey jumped out at me. Atypically, the survey had a set of numbers showing the three-year trend for gross margin dollars per full-time equivalent employee (FTEE). It got me thinking about the following.

What’s a Good Level to Grow Gross Margin Dollars per FTEE?

It varies depending on the channel, but among HIDA distributors the average for the last three years has been about $135K gross margin/FTEE. However, the best performer in each of three sub-groups in 2015 was 16%, 60%, and 90% higher than the average.

Continue reading 42. Grow Gross Margin Dollars per FTEE →

What Are Your Profit Moats?

Warren Buffet buys companies with identified “profit moats.” Moats are sustainable sources of profit and free cash flow. Financial reports often don’t reveal profit moats, so you must be able to uncover them for yourself. Why does Buffet like profit moats? Because they help to manage assets and cost centers. As a distributor, you build your moats of profit-power with customers that grant you–on average–a steady stream of profitable orders.

In every business, customer order streams vary widely at being efficient profit generators. A profitable order (versus an unprofitable order) contains more gross margin dollars (GM$s) than cost-to-serve dollars (CTS$s) that your business spends to fulfill the order. Profit (or loss) dollars (P$s) is the remainder.

Continue reading 41. Build Your Moats of Profit-Power by Tuning Profitability →

There’s no doubt that curiosity is the key to innovation. But many of us are stuck in the same old ways of thinking. Here are a few discussion points for you to test your own knowledge.

Which are true, and which are false?

1. Without exclusive, profit-guaranteed supplier franchises, most distributors sell commodities for a price.
2. Copying the latest efforts of competitors and channel friends yields NO competitive advantage. In fact, maintaining competitive-parity perpetuates poor financial returns.
3. High profits come from unique offerings, which you must invent.
4. Not all experiments are successful, but those that are must at least fill new needs that customers value enough to pay more for.

Continue reading 40. Boost Curiosity to Innovate →

Line item profit analytics (LIPA) can reveal a rich new vein of customer value-added solutions. WayPoint provides thirteen tools to clarify customer buying statistics for you, and flag unnecessary and hidden buying activity that can cost from 5%–30% or more of a customer’s annual purchase total.

The first step to profitability is to fix these profit leaks.

Here’s why.

• You will win more sales while building trust and loyalty
• You will create a bigger barrier for competitors
• You will improve profits by reducing your parallel, unnecessary service costs
• You will evolve a powerful new pitch and the capability of cracking target accounts

Continue reading 39. My Sales Reps Won’t Do That! →