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How Money is Made in Wholesale Distribution

Randy MacLean, President — WayPoint Analytics

•profit analytics •business math for distribution •cost-to-serve math •money-losing sales •money-losing activities •distribution analytics •money-losing customers •profitability management

Randy MacLean shares his analysis of over $65B of distribution business to help others shed incorrect assumptions about how to make money. Businesses that have stellar results have been able to understand profit dynamics and move the profit needle not just by five or ten percent, but by doubling or tripling the bottom line over their competitors.

In most businesses, the focus has been on sales thresholds and that each sale will contribute to the bottom line. The assumption is that at the end of the year, the bottom line will be positive if all thresholds are met. According to Randy, this is simply not true. Consistently, the findings show that the majority of money made in a business is brought in by a small number of clients and activities, while the rest of the business actually generates a loss.

In addition, most executives have been taught that if there is enough gross profit or margin on a sale, then a contribution to profit is made. However, most sales have a cost structure that is higher than the gross profit provides for, therefore, generating losses. Basically, all the good business is wasted on the bad business.

Randy's recent analysis has turned in some shocking insights.

Most Transactions are Not Making Money.

The analysis showed that 62.5% of invoices lose money. This means there is an enormous amount of activity going on that is contributing to losses. This activity guarantees, at best, average performance. Hyper-performers have figured this out and have actually abandoned bad business for good business. To get to the next level, executives need to determine which are good clients and which are bad.

Competitors Trade Customers.

This is a fact of business. However, the best companies use analytics to start to trade wisely, trading bad off for good. They recognize which accounts to shift off to the competition, while focusing on the most profitable business.

Using new analytics and refocusing notions of how money is made are the new wave in business success. And, as Randy has seen firsthand, this is what leads to a super-profitable enterprise.

Audio file: elearning4.mp3