The Real Profit Drivers

Transcription

1 The Real Profit Drivers Prepared For AWRF Prepared By 3985 Wonderland Hill Ave., Suite 201 Boulder, CO distperf.com April 25, 2017

2 Objectives Of The Session Review the Profit Structure of the Industry Identify the Key Pressure Points in Improving Profitability Develop an Action Plan to Improve Financial Performance Exhibit 1 Income Statement Results For Mountain View, Inc. Dollars Percent Net Sales 10,000, Cost of Goods Sold 7,050, Gross Margin 2,950, Payroll and Fringes 1,600, All Other Expenses 950, Total Expenses 2,550, Profit Before Taxes 400,000 Exhibit 2

3 The Recent Trend In Profit Margin P B T-- % Year Exhibit 3 The Recent Trend In Sales Growth S a le s G r o w t h-- % Year Exhibit 4

4 The Long Goodbye Item Sales $8,000,000 $10,000,000 Gross Margin % Sales per Employee $250,000 $327,500 Payroll % All Other Expense % Profit Before Taxes % Exhibit 5 The Do Three Things Well Model: The Impact on PBT Sales Sales Oper. Inv. Impact on Resulting Number Size Growth GM Exp. DSO Turn PBT PBT of Firms Exhibit 6

5 Gross Margin and Operating Expenses: Joined at the Hip Expenses Gross Margin Exhibit 7 Gross Margin and Expenses: The Big Two 50/50 Club Members 20.0% 40/40 Club Members Exhibit 8

6 The Improvement Model: A Rack-Suit Plan Increasing sales by at least the inflation rate plus a safety factor of Force payroll to grow slower than sales to create a sales to payroll wedge of Increase the gross margin percentage (not gross margin dollars) by Decrease the other expense percentage (not expense dollars) by Exhibit 9 The Sales Impact of Enhanced Order Economics Item Current Potential 1 Number of Orders 10,526 10,526 2 Lines per Order Lines Ordered [ 1 x 2 ] 26,316 27,368 4 Fill Rate 95.0% 5 Lines Filled [ 3 x 4 ] 25,000 26,055 6 Average Order Line $ Net Sales [ 5 x 6 ] $10,000,000 $10,526,114 Increase in Sales Exhibit 10

7 The Whale Curve 200 Percent of Net Profit Actual Profit Percent of Customers Exhibit 11 The Reality Of Customer Profitability Customer Percent of Percent of Number of Dollar Profit Per Category Customers Profit Customers Profit Customer High Profit ,000 2,667 Good Profit , Some Profit , Unprofitable , Total , , Exhibit 12

8 Improving The Gross Margin Percentage By Either Buying Or Pricing Summary Buying Pricing Income Statement Current Potential Potential Gross Margin--% Net Sales 10,000,000 10,000,000 10,071,429 Cost of Goods Sold 7,050,000 7,000,000 7,050,000 Gross Margin 2,950,000 3,000,000 3,021,429 Payroll and Fringes 1,600,000 1,605,000 1,607,143 All Other Expenses 950, , ,000 Total Expense 2,550,000 2,555,000 2,557,143 Profit Before Taxes 400, ,000 Exhibit 13 Separating Pricing And Buying Summary Buying Pricing Income Statement Current Potential Potential Net Sales 10,000,000 10,000,000 9,929,078 Cost of Goods Sold 7,050,000 7,000,000 7,000,000 Gross Margin 2,950,000 3,000,000 2,929,078 Payroll and Fringes 1,600,000 1,605,000 1,597,908 All Other Expenses 950, , ,000 Total Expense 2,550,000 2,555,000 2,547,908 Profit Before Taxes 400, ,000 Cost of Goods Reduction--% 0.71 Exhibit 14

9 Impacting Gross Margin With Blind Item Pricing Current Performance Potential Performance Velocity Gross Margin Gross Margin Code Sales % Dollars Sales % Dollars A 6,000, ,500,000 6,000, ,500,000 B 2,000, ,000 2,000, ,000 C 1,500, ,000 1,500, ,000 D 500, , , ,000 Total 10,000, ,950,000 10,050,000 Exhibit 15 Common Characteristics Of Blind Items Characteristic Implication Low Sales Level Bought rarely, unlikely to remember the last price paid Not Heavily Promoted Information about price not readily available Bought Only When Needed Availability more important than price Low Price On a small item, no real concern about price Repair Parts Buy something small, avoid buying something large Unusual Hard to find, availability is key Non-Seasonal No need to discount "in season" Unbranded Difficult to obtain specific price information Exhibit 16

10 The Impact Of A Five Percent Supplier Price Increase Summary Dollar Percent Income Statement Current For Dollar For Percent Net Sales 10,000,000 10,352,500 10,500,000 Cost of Goods Sold 7,050,000 7,402,500 7,402,500 Gross Margin 2,950,000 2,950,000 3,097,500 Payroll and Fringes 1,600,000 1,600,000 1,614,750 All Other Expenses 950, , ,000 Total Expenses 2,550,000 2,550,000 2,564,750 Net Profit 400, ,000 Exhibit 17 The Needed Relationship Between Cost to Serve and Gross Margin Percentage Gross Margin % Cost to Serve Exhibit 18

11 The Mandate For Change During Each Of The Next Five Years Net Sales 5.0 Gross Margin % 0.3 Sales to Payroll Gap 3.0 Other Expense % -0.3 Inventory Turnover 0.0 Collection Period 0.0 Exhibit 19 The Impact Of Making The Mandated Changes Net Sales 10,000,000 10,500,000 12,762,816 Cost of Goods Sold 7,050,000 7,371,000 8,806,343 Gross Margin 2,950,000 3,129,000 3,956,473 Payroll and Fringes 1,600,000 1,632,000 1,766,529 All Other Expenses 950, ,000 1,021,025 Total Expenses 2,550,000 2,598,000 2,787,555 Profit Before Taxes 400, ,000 1,168,918 Net Sales Cost of Goods Sold Gross Margin Payroll and Fringes All Other Expenses Total Expenses Profit Before Taxes Exhibit 20

12 Summary And Conclusions A realistic profit goal is a 10.0% PBT over some reasonable time period Exhibit 21 Oh No! He s Back! Dr. Albert Bates is founder and Chief Sophist (whatever that means) of the Profit Planning Group, the leading supplier of financial benchmarking services. He is also a Principal in the, a research and education entity focusing exclusively on distribution. He makes approximately 100 presentations each year on topics such as Improving the Bottom Line, Doing More With Less and Pricing for Profit. He also heads the firm s investigation into profitability research for over fifty different trade associations. When not conducting convention sessions he enjoys tennis and skiing. He is lousy at both of them. Buy the book: Breaking Down the Profit Barriers in Distribution from Amazon or Barnes & Noble. Trade paper only. Exhibit 22