The Proper Metrics For Distributor Profitability
Distributors face a unique set of problems as products make their way from manufacturers to end-users, and that path is only getting more arduous. Whether a company distributes pet products, air conditioners, boat motor parts, or quilts, its profits are getting squeezed from manufacturers and customers. To keep a positive bottom line, distributors must effectively monitor operational efficiency and understand the influence on profits exerted by each customer.The manufacturer usually has the upper hand in dealing with distributors as evidenced by the manufacturers usually requiring distributors to sign an exclusivity agreement which makes changing brands very difficult for the distributor, while a distributor’s customers have many options from which to choose. For example, in the heating, ventilating, and air conditioning (HVAC) market in Nashville, TN, 16 distributors compete for the same customers. If a customer doesn’t like a price, the customer has fifteen other options. Additionally, more building contractors have been asking for portions of the rebates they know distributors receive from the manufacturers. This proves the distributor’s customer base knows how the game is played at all levels. The two-sided attack on profitability forces distributors to operate with utmost efficiency and to constantly measure the profitability for each individual customer. The big question is, how should those factors be measured?Efficiency must be measured in terms of costs. A distributor simply unloads boxes from the manufacturer, stores them, and then ships those boxes to customers once they are needed. Unfortunately, distributor profits are pinched from manufacturers who essentially set the price of the goods and from customers that are more knowledgeable than ever before. The only variable over which distributors have significant control is their operating costs.