21. Do Your Most Profitable Thing

Distribution Strategy, Index, Line Item Profit Analytics, Profit Analytics

Regarding Next Year’s Branch Plans

Sit through a day of branch managers’ presentations on: “Next Year’s Plans”. How often do you hear (every year)…

“We are going to (try harder) to: buy a little better, sell a little higher and get more efficient at (various) operational costs and execution of (product-centric) sales promotions.”

Excellent! But, tackle these questions too:

  • What is the most-profitable thing that you are already doing?
  • How can you increase that profit-gusher and replicate it elsewhere?

Coaching Tips for Quizzical Looks

First, agree on the difference between Efficiency and Effectiveness.

Efficiency is doing existing practices incrementally better (whether profitable and strategically smart or not).

Effectiveness is doing the One Thing – with the most upside value/profit potential – better. Nail it and scale it!

Next, define: “profitable”. The Profit-Equation is:

Gross Margin Dollars (less) Cost-to-Serve Dollars (equals) Profit Dollars. (No GM% included)

Without a Cost-To-Serve (CTS) model, you can only focus on growing Gross Margin Dollars. What don’t you know about customer-profitability by being blind to CTS?  (Click here for more on Profit Equations.)

And, put – “Buy Low and Sell High” in a bigger perspective. Static, financial analysis trumpets that nothing grows profits faster than: Buy-Low, Sell-High! But, unseen counter-points are:

  • It is a trust-wrecking, zero-sum game. Your profits grow in direct proportion to the profit losses of your channel “partners”. Chiseling –even with charm – fuels resistance. Customers shop harder and more often. Mistrust undermines win-win collaboration possibilities.
  • And, “supply-chain collaboration” stories have been eating up channel share for 25+ years!
  • “Margin compression” isn’t the problem; it is the opportunity. It is a byproduct of supply-chain partner solutions. Cost-To-Serve (CTS) insights allow you to:
    • Lower customers’ hidden “soft costs”
    • Win bigger (partner) share of customer spend
    • Lower your CTS to increase profit margins
    • And, lower prices if necessary and still be profitable.
  • Capitalism eventually kills players with a static, value offering who try to sneak up prices.

ACTION STEPS:

  1. Get Profit-Equation, CTS-Math analytics (Ref: www.waypointanalytics.net)
  2. Target your most super-profitable and unprofitable accounts (and SKUs). Innovate them to the next level. The profit-growth results will beat annual, efficiency “Plans”.
  3. For how-to case studies see: