How Analytics are Democratizing the Distribution Market

Dependence on traditional measures such as gross margin can put a drag on growth and profits. New metrics such as cash-flow value to expenses or expenses as percent of revenue, combined with customer-focused services, are propelling those who take advantage of them, says WayPoint Analytics Randy MacLean.
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As distributors head into the fall season, and the planning and budget season for 2020, it’s vital to plan what your company will be doing differently in the new decade. In fact, it’s important to decide what you’ll be doing differently to close out the last year of the 2010’s, and post greater results than your current practices are delivering.

As I look back at the changes we’ve seen across this decade, I can’t spot anything that’s had a bigger impact than analytics. Sure, the giant companies have always had whole departments dedicated to the practice, but the availability of advanced cost and profit analytics to companies of all sizes is now democratizing the market. The ranks of the super-performers (those getting over 15%, and in some cases, over 25% of revenue to bottom line) are all small- to mid-sized companies.

I doubt any capable executive is unaware of how easy it becomes to make the right call in nearly every case when real, detailed numbers can show precisely what’s going on with individual customer relationships or particular offerings. What I’m seeing, though, is a real change from a decade ago.

A decade ago, the bifurcation was between companies that had some form of analytics and those that did not. Today, that’s shifted to: those that have installed a commercial analytics application, and those that are trying to jury-rig it internally. The difference is stark because the former group are dedicating their time and personnel to action driven by the results, while the latter spend 90% or more of the same on developing a very limited set of numbers and have little left over to update them or do anything about them. In these companies, almost no change is happening.

I learned from my mentors many years ago that “you can’t get different results by doing the same thing.” This truism is what is holding too many companies in stasis. Dependence on ineffectual measures – especially gross margin – and “get all the customers you can” sales strategies put an enormous drag on growth and profits.

New metrics like G2E (op cash per expenses), Op Cash ratios (cash-flow value to expenses), Expense Rate % (expenses % of revenue), combined with customer-trading strategies and concierge customer service are propelling the practitioners to new heights. They’re consuming all the profit oxygen, leaving competitors struggling and short of breath.

The most important metric in distribution is percentage of money-losing invoices. The average profit rate of companies is (inversely) correlated with money-losing invoice percentage. Improving this ratio increases cash-flow and profits, and allows much more aggressive pricing for market-share gains.

The Tools to Turn the Tables

If you’re feeling “margin pressure,” see competitors with “crazy pricing,” or you’re losing key accounts to the competition, you’re undoubtedly up against competitors that have the 20/20 vision that comes from advanced analytics. They know which customers to pursue, how to price to take them from you, and can easily prevent you from winning them back.

Advanced analytics give you the tools to turn the tables, giving you clarity and confidence in the decisions you need make every day, so you can change things to get onto higher ground, and get your customers and profits back.

As the fall budget season begins, why not change course for the balance of the year and the coming decade? You can finish out 2019 with better results than you otherwise would, and hit the ground running as you move into 2020. Be one of the companies that’s taking control of its market position by adopting and using advanced analytics, and put some real daylight in the gap with your competitors.

MacLean is president of WayPoint Analytics; the online system companies use to really see where profits are. For more than a decade, they’ve been a leader in the field concentrating exclusively on the internal metrics that lead to growth, cash-flow and profits. He’s a popular speaker, at industry events where he shares the surprising dynamics that really produce results. For an analytics cheat sheet covering the nine most important metrics for guiding a business in 2020, with formulae and benchmarks for you to adopt, send a request to info@waypointanalytics.com for a free copy.

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