Inventory Management
August 2009 CVSN INSIDER 12 Get on Board the Net Profit Train I was recently doing a webinar when an in-teresting question came up. The webinar was on ranking customers by net profit so that we could allocate resources appropriately. The participant wanted to know how to get the employees, particularly the salespeople, think-ing in terms of net profit. Her question was extremely relevant for most distributors. We are generally conditioned to think in terms of gross sales revenue. How many times do you hear a sales person boast, I just landed a $500 net profit order! Isn't it more exciting to hear that they landed a $16,000 order? At trade shows, do you hear people talk about net or gross? Net profit is like a closely guarded secret. On occasion, a highly enlightened business owner will talk about moving their net percentage higher. For most hard goods distributors, net profit before taxes is somewhere around 3%. A shift of just 1% is a really big deal. In order to help our employees understand the mental shift, we need to start talking about it from the top down. We need to teach how net profit is generated in each sale. We need to show the benefits of improved net profit. Finally, we need to use net profit to make better decisions with our limited resources. Over the course of this article, I will give you a few ideas on how to instill a net profit mentality in your company. Open the Kimono When I teach this subject in public, I ask the au-dience how many companies share financials with the employees. A few sheepish hands go up. For some reason, we are afraid to have our employees know too much about the income of the company. Ironically, they are the ones that can create the biggest impact on net profit. I grew up in family business where financials were shared openly. Specific compensation was not shared, but a general monthly income statement was provided to the employees. They could see sales, gross profit and eventually net profit. This was primarily done to help them understand their profit sharing bonus, but it also showed them where we were spending money. Over my 20 year career there, I never heard about anyone sharing this information with a competitor. Could your competitors really benefit from seeing a simple income statement? I sincerely doubt it. You could tell someone exactly how you go to business and I doubt they could du-plicate it. You have developed a culture that supports your business model. I would take a competitor years to make the transition. We give our competitors way to much credit. They simply can not make the changes necessary to steal your business. A safe compromise would be to use a projec-tor to show the income statement and a simple graph showing progress. Employ the KISS (keep it simple, stupid) method to these presen-tations. I often find that financial people tend to get overly complicated. Make it easy for ev-eryone to comprehend. This can be a solid kick off to a monthly business meeting. Tear Up a Dollar Bill INVENTOrY MANAGEMENT The Distribution Team Jason Bader Managing Partner