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Tip: Understand the Cost to Serve

Tip: Understand the Cost to Serve

August 9, 2018

As a distributor, you must have a complete understanding of what it costs to serve your customers, says Paul Byrnes, vice president of distributor development for NetPlus Alliance, in 4 Mistakes That Are Chipping Away at Distributor Profitability. Though a basic business concept, this is also one of the most important to implement. Distributors need to be as profitable as possible to stay competitive in today’s changing landscape and that means understanding every aspect of what it costs to provide your services.

"As a distributor, even if you are satisfied with your levels of profitability, you are facing headwinds that didn’t exist until recently," said Byrnes. 

This entails knowing the exact costs of doing business. What does it cost to receive products, store products, ship orders and collect payments? And will your competition do it for less?

"How many cents on the dollar do you need to run your business?" asked Byrnes. "If you need 24 cents on the dollar, but your competitor needs just 15 cents, you’re at a disadvantage. By understanding how you compare to the industry, your business can make changes to operate more efficiently."

Byrnes recommends checking with your association to better understand how your processes compare to others in the industry to make better, more profitable decisions.

"If it costs you 17 percent to be in business, you should think hard before you take an order that will make just 10 percent margin," said Byrnes "Without understanding the numbers, it is like batting blind." 

Read more tips in 4 Mistakes That Are Chipping Away at Distributor Profitability.

© 2019 Gale Media, Inc.

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