NEWS

Joining the 40/40 Club

February 2nd, 2015|Comments Off on Joining the 40/40 Club

Joining the 40/40 club
By Dr. Albert D. Bates
President, Profit Planning Group

The statement “gross margin minus expenses equals profit” is an accounting tautology. It is also probably the single most important concept in improving profitability. That is because gross margin and expenses are highly correlated. Firms with high margins tend to have high expenses, while low margin firms have low expenses. The reality is that at all points along the spectrum, from low margin/low expenses to high margin/high expenses, profits are inadequate.

The key to profit improvement is to break the linkage and either produce an enhanced margin without increasing expenses or lower expenses without sacrificing gross margin. This is incredibly easy to talk about, but frustratingly difficult to actually accomplish.

This report will examine the linkage between gross margin and expenses from two perspectives:

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Profit Improvement Report – September 2014 Price Cutting Economics: Know Before You Go

January 18th, 2015|Comments Off on Profit Improvement Report – September 2014 Price Cutting Economics: Know Before You Go

Prepared for SWA
Vol. 23, No. 3
September 2014

Price Cutting Economics:
Know Before You Go

By Dr. Albert D. Bates
President, Profit Planning Group

In distribution at the present time there is a feeling that firms must become more price aggressive than they ever before. A large component of this perception can be attributed to the emergence of new internet-based competition. Some of it is simply the feeling that price is a significant driver of purchasing behavior in a slowly-recovering economy.

Whatever the reasons for the increasing price aggressiveness behavior, a word of caution is in order. Lowering prices can be a successful strategy only when if the firm achieves two goals. First, the new pricing must produce a significant sales gain. Second, lower margins must be offset by lower costs.

This report looks at the issues of enhanced price aggressiveness from two distinct perspectives:

The Economics of Price Cutting—An analysis of the changes in operating economics required to make price reductions a positive profit move.
Marketing Realities—A review of the extent to which the world really is becoming more price oriented.

 

The Economics of Price Cutting

Any profitability analysis of lowering prices must be based upon three factors, all of which are difficult to predict. First, how large of a price reduction is required to get attention in the marketplace. Second, what sales increase, if any, will accrue from the price reduction. Third, to what extent can operating costs be reduced to support a lower-gross margin strategy.

Every firm will have distinct ideas regarding these three factors. However, some insight into how […]

Politics – How Will Our Industry Be Affected?

September 16th, 2014|1 Comment

What political issues do you believe will have the greatest impact on our industry in the near future?