The MHEDA Journal - Fourth Quarter, 2016 - 86

MONEY PROFIT MATTERS Generating Adequate Profit In Turbulent Times T BY AL BATES he year 2015 could be characterized with the Dickensian phrase: It was the best of times, it was the worst of times. Economic growth was steady, albeit unexciting. With lower energy prices, there were few economic storm clouds to worry about. This allowed distributors in almost every line of trade to improve their profitability. It was the best of times. Towards the end of the year though, manufacturing output turned down which created uncertainty across all of distribution. In addition, the threat of increased competition from webbased competitors made it increasingly difficult to generate higher gross margins. Finally, wage rates started to turn up after a long period of virtually no increases. Cost escalation seemed inevitable. It was the worst of times. Some companies were able to address both the opportunities and the challenges to generate outstanding profits. They did so by managing the three major Critical Profit Variables (CPVs). Those crucial CPVS are (1) the ability to increase sales a little faster than inflation, (2) the ability to maintain an adequate gross margin in the face of competitive pressures and (3) maintaining control of expenses, especially payroll, despite an upward trend in expenses associated with an improved economy. Interestingly, the high-profit firms almost never truly excelled at any one 86 MHEDA | themhedajournal.org of the CPVs. Instead, they were able to manage the collection of profit drivers just a "little bit" better than the typical firm in the industry. This small delta in performance was enough to generate dramatically higher profit. The MHEDA DiSC study provides some key insights into exactly how the high-profit firms generate better profit numbers. It focuses intently on the three profit drivers identified earlier-growth, gross margin and expenses. The report provides a roadmap for any firm wanting to improve its financial performance. Typical Versus High Profit The term "Typical Firm" in the report means the firm that is most representative of the industry. This typical firm is the one with financial performance in the exact middle of the results for all participating firms. That is, on any given measure, half of the firms performed better than the typical firm and half performed worse. It is the best measure of industry performance on the profit drivers. In 2015 the typical firm generated sales of $39,815,250. On that sales base, it produced a pre-tax profit of $1,393,534, which equates to a profit margin of 3.5% of sales. Stated somewhat differently, every $1.00 of sales resulted in 3.5 cents of profit. In contrast to the typical firm, the high-profit firm generated a profit margin of 6.4%. This means that even if the high-profit firm had produced the same sales volume as the typical firm, it would have generated more profit for reinvestment in the firm. It is a reinvestment factor that tends to multiply over time. Managing the CPVs In trying to move from typical to highprofit, the key is to understand the CPVs with greater precision. To facilitate that understanding, the CPV results for the typical firm and high-profit firm in the industry are summarized in Exhibit 1. While there are other factors that could be examined in evaluating performance, these are the ones that really drive performance. At first glance, some of the differences in the CPVs between typical and highprofit may appear to be so small that they don't even deserve management attention. In fact, it is these small differences that combine to produce major changes in profit margin. This means that the typical firm doesn't have to dramatically improve performance on the CPVs, but simply do a little better across the board. There is a multiplier impact when performance is better in a few areas, even if "better" is relatively small.

Table of Contents for the Digital Edition of The MHEDA Journal - Fourth Quarter, 2016

Chairman’s Perspective
From the Desk of Liz Richards
Editor’s Note
Ask Your Board
2016 MHEDA University Calendar
Women in Industry
Mheda Mvp And Mvs Recipients
Mheda Member Profile
@Work
Women @Work
Industry Pulse
Sales Success Stories
2017 Critical Impact Factors
Planning The 2017 Critical Impact Factors
Making Sense Of “All The Things”
Mobile – A Necessity For B2b Marketing
Big Challenge For Small Business
How To Make Millennials Loyal To Your Organization
Returnable Racks And Containers Are A Big Trend In Environmental (And Cost-Effective) Packaging
Sales Intel
Generating Adequate Profit In Turbulent Times
New Members
Spotlight on Association News
MHEDA Milestones
Index of Advertisers by Product Category
The Last Word
The MHEDA Journal - Fourth Quarter, 2016 - cover1
The MHEDA Journal - Fourth Quarter, 2016 - cover2
The MHEDA Journal - Fourth Quarter, 2016 - 3
The MHEDA Journal - Fourth Quarter, 2016 - 4
The MHEDA Journal - Fourth Quarter, 2016 - 5
The MHEDA Journal - Fourth Quarter, 2016 - 6
The MHEDA Journal - Fourth Quarter, 2016 - 7
The MHEDA Journal - Fourth Quarter, 2016 - 8
The MHEDA Journal - Fourth Quarter, 2016 - 9
The MHEDA Journal - Fourth Quarter, 2016 - 10
The MHEDA Journal - Fourth Quarter, 2016 - Chairman’s Perspective
The MHEDA Journal - Fourth Quarter, 2016 - 12
The MHEDA Journal - Fourth Quarter, 2016 - From the Desk of Liz Richards
The MHEDA Journal - Fourth Quarter, 2016 - 14
The MHEDA Journal - Fourth Quarter, 2016 - Editor’s Note
The MHEDA Journal - Fourth Quarter, 2016 - 16
The MHEDA Journal - Fourth Quarter, 2016 - Ask Your Board
The MHEDA Journal - Fourth Quarter, 2016 - 18
The MHEDA Journal - Fourth Quarter, 2016 - 19
The MHEDA Journal - Fourth Quarter, 2016 - 2016 MHEDA University Calendar
The MHEDA Journal - Fourth Quarter, 2016 - 21
The MHEDA Journal - Fourth Quarter, 2016 - 22
The MHEDA Journal - Fourth Quarter, 2016 - Women in Industry
The MHEDA Journal - Fourth Quarter, 2016 - Mheda Mvp And Mvs Recipients
The MHEDA Journal - Fourth Quarter, 2016 - 25
The MHEDA Journal - Fourth Quarter, 2016 - Mheda Member Profile
The MHEDA Journal - Fourth Quarter, 2016 - 27
The MHEDA Journal - Fourth Quarter, 2016 - 28
The MHEDA Journal - Fourth Quarter, 2016 - 29
The MHEDA Journal - Fourth Quarter, 2016 - 30
The MHEDA Journal - Fourth Quarter, 2016 - @Work
The MHEDA Journal - Fourth Quarter, 2016 - 32
The MHEDA Journal - Fourth Quarter, 2016 - Women @Work
The MHEDA Journal - Fourth Quarter, 2016 - Industry Pulse
The MHEDA Journal - Fourth Quarter, 2016 - 35
The MHEDA Journal - Fourth Quarter, 2016 - Sales Success Stories
The MHEDA Journal - Fourth Quarter, 2016 - 37
The MHEDA Journal - Fourth Quarter, 2016 - 38
The MHEDA Journal - Fourth Quarter, 2016 - 39
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The MHEDA Journal - Fourth Quarter, 2016 - 58
The MHEDA Journal - Fourth Quarter, 2016 - 59
The MHEDA Journal - Fourth Quarter, 2016 - 2017 Critical Impact Factors
The MHEDA Journal - Fourth Quarter, 2016 - 61
The MHEDA Journal - Fourth Quarter, 2016 - Planning The 2017 Critical Impact Factors
The MHEDA Journal - Fourth Quarter, 2016 - 63
The MHEDA Journal - Fourth Quarter, 2016 - Making Sense Of “All The Things”
The MHEDA Journal - Fourth Quarter, 2016 - 65
The MHEDA Journal - Fourth Quarter, 2016 - Mobile – A Necessity For B2b Marketing
The MHEDA Journal - Fourth Quarter, 2016 - 67
The MHEDA Journal - Fourth Quarter, 2016 - 68
The MHEDA Journal - Fourth Quarter, 2016 - 69
The MHEDA Journal - Fourth Quarter, 2016 - Big Challenge For Small Business
The MHEDA Journal - Fourth Quarter, 2016 - 71
The MHEDA Journal - Fourth Quarter, 2016 - 72
The MHEDA Journal - Fourth Quarter, 2016 - 73
The MHEDA Journal - Fourth Quarter, 2016 - 74
The MHEDA Journal - Fourth Quarter, 2016 - 75
The MHEDA Journal - Fourth Quarter, 2016 - How To Make Millennials Loyal To Your Organization
The MHEDA Journal - Fourth Quarter, 2016 - 77
The MHEDA Journal - Fourth Quarter, 2016 - Returnable Racks And Containers Are A Big Trend In Environmental (And Cost-Effective) Packaging
The MHEDA Journal - Fourth Quarter, 2016 - 79
The MHEDA Journal - Fourth Quarter, 2016 - Sales Intel
The MHEDA Journal - Fourth Quarter, 2016 - 81
The MHEDA Journal - Fourth Quarter, 2016 - 82
The MHEDA Journal - Fourth Quarter, 2016 - 83
The MHEDA Journal - Fourth Quarter, 2016 - 84
The MHEDA Journal - Fourth Quarter, 2016 - 85
The MHEDA Journal - Fourth Quarter, 2016 - Generating Adequate Profit In Turbulent Times
The MHEDA Journal - Fourth Quarter, 2016 - 87
The MHEDA Journal - Fourth Quarter, 2016 - 88
The MHEDA Journal - Fourth Quarter, 2016 - New Members
The MHEDA Journal - Fourth Quarter, 2016 - 90
The MHEDA Journal - Fourth Quarter, 2016 - Spotlight on Association News
The MHEDA Journal - Fourth Quarter, 2016 - 92
The MHEDA Journal - Fourth Quarter, 2016 - 93
The MHEDA Journal - Fourth Quarter, 2016 - 94
The MHEDA Journal - Fourth Quarter, 2016 - MHEDA Milestones
The MHEDA Journal - Fourth Quarter, 2016 - 96
The MHEDA Journal - Fourth Quarter, 2016 - 97
The MHEDA Journal - Fourth Quarter, 2016 - Index of Advertisers by Product Category
The MHEDA Journal - Fourth Quarter, 2016 - 99
The MHEDA Journal - Fourth Quarter, 2016 - 100
The MHEDA Journal - Fourth Quarter, 2016 - 101
The MHEDA Journal - Fourth Quarter, 2016 - The Last Word
The MHEDA Journal - Fourth Quarter, 2016 - cover3
The MHEDA Journal - Fourth Quarter, 2016 - cover4
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