Randy MacLean, President — WayPoint Analytics
•competitive strategy •profit analytics •WayPoint Analytics •distribution management best practices •profit training •big data •profit strategy •WayPoint systems •management strategies •Wholesale Distribution Industry •distribution industry trends •distribution industry intelligent pricing •business math for distribution •wholesale distribution basic math
Wednesday, August 09, 2017—What makes for a good sale? Many wholesale distribution executives and salespeople are laboring under some dangerous misconceptions when it comes to what is or isn't a good sale. In this video, Randy MacLean discusses why some things that many of us have held to be true are incorrect and how we should really look at sales.
If you're anything like most people, your belief system was probably shaped by individuals who have been around the business a lot longer than you have. These beliefs may have been something that your mentors picked up from their mentors or, in a bigger company, it might have come off a spreadsheet. Regardless of where that information came from, it probably has one thing in common: it's wrong.
When we first invented WayPoint, we took a very a hard look at the numbers and it challenged our perceptions. As we continued to do profit analytics for companies in the wholesale distribution industry, we were forced to conclude that many of the things we were taught—and probably things that you were taught too—actually don't hold water. They were based on some assumptions that unfortunately just aren't true.
For starters, there are no magic numbers. Some distributors may have decided that, for instance, any sale with at least a 22% margin will make money. However, that approach overlooks the fact that different sales have different cost structures. It's not like there's one 22% cost structure associated with every sale. For instance, a customer who purchases a lot of product across a large number of shipments is obviously going to have a different structure than somebody who buys a lot of product but only requires one shipment.
We've found that about 75% to 80% of all sales, and over 60% of all customer accounts, actually lost money. This happened because even if the margins were above the magical line, whatever that number might be, the cost structure was even more above that line. As a result, the sales were losing money.
It's dangerous for distributors to operate under the assumption that as long as you meet a certain threshold in terms of margin percentage, that every sale would add some kind of a profit to the bottom line. This kind of thinking, which overlooks that the cost structure might be greater than the gross profit, is responsible for most sales actually adding a loss to the bottom line.
Don't believe me? You can test the idea yourself right now by considering the following information. In wholesale distribution, most sales run between a 15% and 35% gross margin. (Just to be clear, gross margin is defined as the percentage of the revenue that's left after you've paid for the product.) To put it in simpler terms, a 35% gross margin is 35 cents out of every dollar is left after we paid for the product.
While gross margins may run between 15% to 35%, the cost to serve or the cost structure for the sale can run between 0 and 200% (or possibly even more!). If you randomly picked a number from each one of those groups, such as a 28-margin and 58 cost structure, and married them together, you would wind up being 20 cents out of every dollar underwater on that particular sale, even though the margin is normally quite good. In wholesale distribution, many sales look just like this. Odds are you have quite a few in your company right now!
I'd like to urge you to take a deeper look into the cost structures of your own sales. Abandon the old teachings, the ones that promote gross margin, in favor of line item profit analytics so you can see whether each sale makes money and identify (and correct) issues with cost structures that are robbing your company of its profits.
For more information about Randy MacLean, visit: www.waypointanalytics.net
The 1st of 3 lists defining the markers of Distribution companies outpacing their peers.
Bruce Merrifield and Randy MacLean discuss the handful of key customers in your business, and how to keep them happy and loyal.
Randy MacLean explains the differences in business intelligence systems, and how to know what you're getting with each kind.
Steve Epner and Randy MacLean discuss topics from Steve's book. In this video: How to Innovate.
In-house analytics initiatives are prone to delivering ineffective information or to outright failure. Here's why.
2020 Q4 is the time companies can take great leaps in market position, actively shaping their competitive landscape for years to come.
The top business know not only how to innovate, but where to spot opportunities where innovation will bring the greatest results.
See how implementing LIPA can give you the bandwidth to be more accommodating to your customers with analytics-based service excellence
Randy MacLean and Bruce Merrifield of WayPoint Analytics discuss different levels of cost analysis, and why deeper analytics can bring much greater benefits.
Companies are developing more and more sophisticated approaches to sales compensation and here Bruce Merrifield and Randy MacLean examine the trends.
Webinar: Quantum Sales Compensation - How to Create a powerful new kind of sales incentive plan
Use profit analytics to help drive radical profit gains by balancing volume, margin and service costs for every account, doubling and tripling territory profits
Discussion of how the most successful companies are adopting specialized sales functions, achieving superior results.
Waypoint Analytics uses line item profit analytics to dig deep into the numbers, and Waypoint users learn both bad news and good news about their customers.
Managing Product Line Profits shows how operations can have a significant impact on net profit and examines Peak Internal Profit, accumulated profit and more
Discussion about a 9-step process aimed at transforming a transactional relationship with an account into a partnership.
Randy MacLean and Bruce Merrifield of WayPoint Analytics discuss profit value-based customer segmentation.
Many naturally occurring, high gross margin percentage accounts and high gross margin percentage SKUs are operating profit losers.
A discussion of the benefits of segmentation and how this approach can help distributors achieve far greater levels of profitability.
Top companies like Amazon can leverage big data to predict consumer buying habits. Bruce Merrifield discusses how you can do this too!
Most distributors have naturally occurring, high gross margin percentage accounts and high gross margin percentage (small dollar pick) SKUs.
How to identify and protect the accounts at the core of profits.
Randy MacLean and Bruce Merrifield sit down for a talk about the issues and opportunities, tactics and strategies for increasing profit performance.
Here is a case study in which the lowest gross margin percentage niche was the most profitable and the highest gross margin percentage was the loser.
Continuance of the Enterprise Account Selling Model video series. Refers to a preceding video. Drawn from Bruce's presentation at APIC on March 1, 2016.
A continuation of the discussion between Bruce Merrifield and Randy MacLean over Bruce's Enterprise Account Selling Model (part 2).
Bruce Merrifield and Randy MacLean discuss Bruce's Enterprise Account Selling Model, as presented at APIC on March 1, 2016.
Using the negotiation process to achieve CTS savings, allowing you to offer your customers lower prices while leaving the table with a larger profit.
Customer whale curves are a great opportunity to view the overall picture of your customer profitability and apply appropriate sales models to each
Bruce Merrifield discusses the Wheel of Learning and how this simple tool can catapult you forward with innovative thinking.
This video by Bruce Merrifield and Randy MacLean describes why you can't rely solely on gross margin to determine profitability.
An in-depth look at some historical limitations to sales compensation, and why those factors no longer apply with the availability of LIPA.
Randy MacLean discusses the value and utility of segmenting your customer accounts.
What to do with your top accounts.
A fixation on gross margin – without looking at cost-to-serve (CTS) – has blinded countless distributors and limited their ability to achieve profitability.
See why your most profitable 200+ items are typically popular commodities with lots of picks for lots of customers with a high average sales dollar per pick.
Learn how this distributor was able to massively ramp up its profitability even as it lost many of its customers.
Randy MacLean talks about the emergence of a new sales strategy.
A discussion on how little extras can sometimes add up to a lot of infrastructure cost in wholesale distribution companies.
Learn how to boost your company innovation IQ by adopting the Anti-Nitpick Rule and the Wheel of Learning Tool.
Catalogs still exist, but they have gone online. In this video, Randy MacLean and Bruce Merrifield outline the changing reality of catalog operators.
Randy MacLean discusses key profitability metrics for QPM.
Randy and Bruce explain why it's important to optimize inventory in the same way you optimize personnel and other resources toward the best profit opportunities
In this video, Bruce Merrifield turns the tables on Waypoint President Randy MacLean, and asks Randy to strategize on how to beat the competition.
Randy discusses the benefits of the extraordinarily valuable High Volume Account Report.
A discussion of the perils of a cookie cutter approach when it comes to sales and service in the wholesale distribution industry.
Bruce Merrifield of WayPoint Analytics teaches the importance of customer segmentation and the insights it can offer your distribution company.
It's not necessary to compete with AmazonSupply on pricing when you've got your ordering and delivery systems, fill rates and customer service at a high level.
Randy MacLean introduces the core principles of QPM and illustrates how it's the most effective way to run a business.
Have you had trouble conveying the importance of CTS to your team? Learn how this course provides an affordable and convenient educational solution.
What is the value of the APIC conference for a business, and why does it stand out above other education programs?
Getting Results with a Customer Audit
Bruce Merrifield and Randy MacLean discuss profit strategies for wholesale distributors that will raise their cost-to-serve and profits.
Webinar: Quantum Sales Compensation Plan Part 2
Webinar: Quantum Sales Compensation: Designing Your Plan
Webinar: Quantum Sales Compensation for the Wholesale Distribution Industry: Launching Your Plan