The first distributor association financial surveys debuted over 40 years ago and mostly highlight data that lenders and tax authorities want audited. Now, it’s clear that these numbers show the downstream symptoms rather than the upstream root causes of profits or losses. Also, the causes often remain unknown and unmeasured by at least 90% of distributor survey participants.

For the last fifteen years, data has shown that 90% of participants in these financial surveys averaged 7% return on total assets (ROTA), as a result, they are put in commodity-hell. But, the top 5% of participants averaged a ROTA over 22%.

Here’s what I conclude:

• The bottom 90% all work hard at the same financial management best practices
• The top 5% are innovating, yet, guided by strategic insights with supplementary supporting analytics and metrics
• And, the top 5% are not feeding easily available financial data into analytics software just to create derivative numbers of downstream symptoms that offer no insight

In addition, having financial outcome goals is a start, but the real goal is to create controllable input actions that help improve less controllable downstream output numbers. Here’s how:

• A cost to serve (CTS) model to understand and manage transactional cost economics, which in turn explains why customers are profitable or unprofitable.
• Root cause insights for creating unique service value for each targeted niche of customers
• Ballpark measurements (much better than none) to improve the effectiveness of critical intangibles such as leadership, strategy, culture, systems, and people engagement.

How to Learn More about Innovation Metrics

Check out some of these articles:

Why do gross margin dollars/full-time equivalent employees correlate perfectly with ROTA?

• Breaking Out of a Commodity-Hell Mindset
• Grow Gross Margin Dollars per FTEE
• A Catalytic Financial Survey Ratio
• Insight Into the NAED 2016 PAR Report

Then, profits come from larger average gross margin dollars/order streams from bigger customers

• Build Your Moats of Profit-Power by Tuning Profitability

Next, why and how to tune up average order size at bigger accounts

• Make Your Own Luck with Big Profit Swing Customers
• Judo Selling for Fading Sales Growth

Then, measure key intangibles

• Warren Buffet’s Favorite Metrics
• What Makes a Branch Profitable?
• Best Practice: Focus and Measure the Service Profit Chain

For courage to act on innovative metrics

• Do You Have YOUR Theo Epstein for the Battle of Analytics?

Lastly, each blog is about 400 words. So, why not pick one for the management team to read and discuss for their own innovation metrics recap for your company?

Catch my live presentation at APIC

In conclusion, for re-thinking your best innovation metrics and getting the courage to experiment forward, attend my presentation at the upcoming Advance Profit Innovation Conference in Phoenix on April 20-21. Finally, the top 5% of innovative distributors will be there in force. Will you?