The MHEDA Journal - Fourth Quarter, 2018 - 79

DISC

Exhibit 1
The Critical Profit Variables
Typical

High Profit

$40,100,000

$44,900,000

3.1%

6.9%

20.6%

49.7%

Sales Change

7.2%

7.9%

Gross Margin

28.7%

31.5%

Payroll Expense

15.7%

15.1%

Non-Payroll Expenses

9.8%

9.6%

Sales Per Employee

$331.694

$351,596

Inventory Turnover

4.4

6.2

35.6 Days

36.2 Days

Performance Results
Net Sales
Profit Margin (pre-tax)
Return on Owner Equity
The Critical Profit Variables

Average Collection Period
At first glance, some of the differences in the CPVs between typical and
high-profit 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 return on investment.
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.
From a management perspective, it is
not even necessary to do a little better
everywhere. However, being "good on
everything" is not necessary to generate a high level of profitability. What is
important is to be good on what counts.
It is important to emphasize once
again that the CPVs that are the most
important benchmarks to enhancing
profit results are sales growth, gross
margin, operating expenses (both
payroll expenses and non-payroll
expenses), and inventory turnover.
Each factor needs to be planned carefully to ensure adequate profits.

* Sales Growth
The level of sales growth is always
a key issue in generating adequate
profits. However, there is a misunderstanding that very rapid sales growth
is required for success. In fact, it is not
necessary to achieve dramatic sales
growth, just a growth rate that results
in improved profitability.
The minimum rate of sales growth
that a firm should plan for equals the
rate of inflation plus three percentage
points. Consequently, if the inflation
rate is 2.0%, then ideal sales growth
would be at least 5.0%. Again, this
should be viewed as a minimum.
Growth faster than 5.0% will help
improve profits a little. Growth less
than 5.0% will almost never lead to
higher profit.
Sales growth that is too slow means
that expenses, which tend to be tied
closely to inflation, out-pace the rate of
growth so that expenses as a percent of
sales increase, resulting in lower profit.
While very few firms believe so,
sales growth that is too rapid is also
a problem. Cash flow in periods of
rapid growth is always a challenge,

and operating systems tend to get taxed
when growth is too rapid.

* Gross Margin
Price pressures never go away. Yet,
somehow the high-profit distributors
were able to earn nearly 3 percentage points higher gross margin than
the typical distributor in the industry.
That is significant. However, they did
not achieve this lucrative overall gross
margin by simple charging 3% more
for their products.
How did they earn such lofty margins? Through a combination of better
product mix, emphasizing higher margin revenue categories, and by earning
a slightly higher gross margin in each
product category. Detailed benchmarks
on product mix and gross margin by
product category can be found in the
DiSC report.

* Payroll Expenses &
Employee Productivity
Payroll is always the largest operating expense factor a distributor faces,
which means that controlling payroll
is essential to controlling expenses.
The MHEDA Journal | Fourth Quarter 2 018

79



The MHEDA Journal - Fourth Quarter, 2018

Table of Contents for the Digital Edition of The MHEDA Journal - Fourth Quarter, 2018

Chairman’s Perspective
From the Desk of Liz Richards
Editor’s Note
MHEDA Learning Management System
Ask Your Board
MHEDA Member Profile
@Work
Women In Industry
Industry Pulse
2019 Material Handling Business Trends
Defining MHEDA’s 2019 Material Handling Business Trends
10 Years Of Material Handling Trends
Using Virtual Reality to Enhance Forklift Operator Training
Sales Success Stories
Women In Industry Conference
You Are Safe
Bank To Thanks
Be Bold
DiSC – Little Things Mean a Lot
Leading Change: The New Management Imperative
The Importance of Your Online Presence
Spotlight on Association News
New Members
MHEDA Milestones
Index to Advertisers by Product Category
Index to Advertisers Alphabetical
The Last Word
The MHEDA Journal - Fourth Quarter, 2018 - Intro
The MHEDA Journal - Fourth Quarter, 2018 - cover1
The MHEDA Journal - Fourth Quarter, 2018 - cover2
The MHEDA Journal - Fourth Quarter, 2018 - 3
The MHEDA Journal - Fourth Quarter, 2018 - 4
The MHEDA Journal - Fourth Quarter, 2018 - 5
The MHEDA Journal - Fourth Quarter, 2018 - 6
The MHEDA Journal - Fourth Quarter, 2018 - 7
The MHEDA Journal - Fourth Quarter, 2018 - 8
The MHEDA Journal - Fourth Quarter, 2018 - 9
The MHEDA Journal - Fourth Quarter, 2018 - 10
The MHEDA Journal - Fourth Quarter, 2018 - Chairman’s Perspective
The MHEDA Journal - Fourth Quarter, 2018 - 12
The MHEDA Journal - Fourth Quarter, 2018 - From the Desk of Liz Richards
The MHEDA Journal - Fourth Quarter, 2018 - 14
The MHEDA Journal - Fourth Quarter, 2018 - INSERT3
The MHEDA Journal - Fourth Quarter, 2018 - INSERT4
The MHEDA Journal - Fourth Quarter, 2018 - Editor’s Note
The MHEDA Journal - Fourth Quarter, 2018 - MHEDA Learning Management System
The MHEDA Journal - Fourth Quarter, 2018 - 17
The MHEDA Journal - Fourth Quarter, 2018 - Ask Your Board
The MHEDA Journal - Fourth Quarter, 2018 - 19
The MHEDA Journal - Fourth Quarter, 2018 - 20
The MHEDA Journal - Fourth Quarter, 2018 - 21
The MHEDA Journal - Fourth Quarter, 2018 - 22
The MHEDA Journal - Fourth Quarter, 2018 - 23
The MHEDA Journal - Fourth Quarter, 2018 - MHEDA Member Profile
The MHEDA Journal - Fourth Quarter, 2018 - 25
The MHEDA Journal - Fourth Quarter, 2018 - 26
The MHEDA Journal - Fourth Quarter, 2018 - @Work
The MHEDA Journal - Fourth Quarter, 2018 - 28
The MHEDA Journal - Fourth Quarter, 2018 - Women In Industry
The MHEDA Journal - Fourth Quarter, 2018 - Industry Pulse
The MHEDA Journal - Fourth Quarter, 2018 - 31
The MHEDA Journal - Fourth Quarter, 2018 - 32
The MHEDA Journal - Fourth Quarter, 2018 - 2019 Material Handling Business Trends
The MHEDA Journal - Fourth Quarter, 2018 - Defining MHEDA’s 2019 Material Handling Business Trends
The MHEDA Journal - Fourth Quarter, 2018 - 35
The MHEDA Journal - Fourth Quarter, 2018 - 36
The MHEDA Journal - Fourth Quarter, 2018 - 37
The MHEDA Journal - Fourth Quarter, 2018 - 10 Years Of Material Handling Trends
The MHEDA Journal - Fourth Quarter, 2018 - 39
The MHEDA Journal - Fourth Quarter, 2018 - 40
The MHEDA Journal - Fourth Quarter, 2018 - 41
The MHEDA Journal - Fourth Quarter, 2018 - 42
The MHEDA Journal - Fourth Quarter, 2018 - 43
The MHEDA Journal - Fourth Quarter, 2018 - 44
The MHEDA Journal - Fourth Quarter, 2018 - 45
The MHEDA Journal - Fourth Quarter, 2018 - 46
The MHEDA Journal - Fourth Quarter, 2018 - 47
The MHEDA Journal - Fourth Quarter, 2018 - 48
The MHEDA Journal - Fourth Quarter, 2018 - 49
The MHEDA Journal - Fourth Quarter, 2018 - INSERT1
The MHEDA Journal - Fourth Quarter, 2018 - INSERT2
The MHEDA Journal - Fourth Quarter, 2018 - 50
The MHEDA Journal - Fourth Quarter, 2018 - 51
The MHEDA Journal - Fourth Quarter, 2018 - Using Virtual Reality to Enhance Forklift Operator Training
The MHEDA Journal - Fourth Quarter, 2018 - 53
The MHEDA Journal - Fourth Quarter, 2018 - Sales Success Stories
The MHEDA Journal - Fourth Quarter, 2018 - 55
The MHEDA Journal - Fourth Quarter, 2018 - 56
The MHEDA Journal - Fourth Quarter, 2018 - 57
The MHEDA Journal - Fourth Quarter, 2018 - 58
The MHEDA Journal - Fourth Quarter, 2018 - 59
The MHEDA Journal - Fourth Quarter, 2018 - 60
The MHEDA Journal - Fourth Quarter, 2018 - 61
The MHEDA Journal - Fourth Quarter, 2018 - 62
The MHEDA Journal - Fourth Quarter, 2018 - 63
The MHEDA Journal - Fourth Quarter, 2018 - 64
The MHEDA Journal - Fourth Quarter, 2018 - 65
The MHEDA Journal - Fourth Quarter, 2018 - Women In Industry Conference
The MHEDA Journal - Fourth Quarter, 2018 - 67
The MHEDA Journal - Fourth Quarter, 2018 - 68
The MHEDA Journal - Fourth Quarter, 2018 - 69
The MHEDA Journal - Fourth Quarter, 2018 - You Are Safe
The MHEDA Journal - Fourth Quarter, 2018 - 71
The MHEDA Journal - Fourth Quarter, 2018 - Bank To Thanks
The MHEDA Journal - Fourth Quarter, 2018 - 73
The MHEDA Journal - Fourth Quarter, 2018 - 74
The MHEDA Journal - Fourth Quarter, 2018 - Be Bold
The MHEDA Journal - Fourth Quarter, 2018 - 76
The MHEDA Journal - Fourth Quarter, 2018 - 77
The MHEDA Journal - Fourth Quarter, 2018 - DiSC – Little Things Mean a Lot
The MHEDA Journal - Fourth Quarter, 2018 - 79
The MHEDA Journal - Fourth Quarter, 2018 - 80
The MHEDA Journal - Fourth Quarter, 2018 - 81
The MHEDA Journal - Fourth Quarter, 2018 - Leading Change: The New Management Imperative
The MHEDA Journal - Fourth Quarter, 2018 - 83
The MHEDA Journal - Fourth Quarter, 2018 - 84
The MHEDA Journal - Fourth Quarter, 2018 - 85
The MHEDA Journal - Fourth Quarter, 2018 - 86
The MHEDA Journal - Fourth Quarter, 2018 - 87
The MHEDA Journal - Fourth Quarter, 2018 - The Importance of Your Online Presence
The MHEDA Journal - Fourth Quarter, 2018 - 89
The MHEDA Journal - Fourth Quarter, 2018 - 90
The MHEDA Journal - Fourth Quarter, 2018 - 91
The MHEDA Journal - Fourth Quarter, 2018 - 92
The MHEDA Journal - Fourth Quarter, 2018 - Spotlight on Association News
The MHEDA Journal - Fourth Quarter, 2018 - New Members
The MHEDA Journal - Fourth Quarter, 2018 - MHEDA Milestones
The MHEDA Journal - Fourth Quarter, 2018 - Index to Advertisers by Product Category
The MHEDA Journal - Fourth Quarter, 2018 - Index to Advertisers Alphabetical
The MHEDA Journal - Fourth Quarter, 2018 - The Last Word
The MHEDA Journal - Fourth Quarter, 2018 - cover3
The MHEDA Journal - Fourth Quarter, 2018 - cover4
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