Association Profit Planning Reports
Each year the Profit Planning Group of Boulder, CO works with many trade associations to create annual “Profit Reports” for the members of those associations. Distributors that participate by submitting their financial data to the Profit Planning Group receive individualized reports. As a by-product, the associations receive and distribute a compilation of the data submitted along with analysis provided by the Profit Planning Group.
If your trade association offers this service I heartily recommend that you spend the money necessary to participate. I did when I ran our family business and learned a great deal about our company and the steps we could take to make it more profitable.
Each year I receive three of the trade association Profit Reports: ISA, STAFDA & MHEDA.
The ISA (Industrial Supply Association) and MHEDA (Material Handling Equipment Distributors Association) reports provide the most data and have an exceptional discussion of what it takes to be a “High Profit” distributor. The difference can be staggering — an ISA “typical” member has a net profit before taxes of 1.7% and a pre-tax Return On Assets of 5.4%; while the high profit folks have a net profit of 4.7% and ROA of 17.4%. For MHEDA the difference is even greater: profit of 2.1% for typical and 7.6% for high profit distributors; and ROA of 6.9% and 20.5% respectively.
Key Profit Variables
The Profit Planning Group keys on five critical profit variables to highlight why the high profit distributors are able to distinguish themselves. These variables are:
- Sales Per Employee
- Gross Margin Percentage
- Operating Expense Ratio
- Inventory Turnover
- Average Collection Period
Work on improving these 5 elements and you will have a much more profitable business. It figures that if you sell more per employee you should be a better company. ISA high profits had $390,000 per, while MHEDA’s was $430,000, an improvement of 17% over the typical distributors. Improving your gross margin is another “no-brainer”, but easier said than done. It takes a lot of discipline to raise your GM% by a point or two, but that’s what the high performers have done.
In the case of the operating expense ratio the best distributors in both groups had operating expenses of a little over 20%, 2-½ percentage points less than the typical members. An element of the operating expense ratio is GMROI (Gross Margin Return on Inventory) – for ISA high performers this was 270% compared to 147% for typical distributors.
And lastly, Inventory Turns were 6.4 for the highs versus 4.7 for the typical member, while the Average Collection Period was 41.7 days for the high performers and 47.6 days for a typical ISA distributor.
Both reports have much more data to review that point towards improving these critical variables. But there is no doubt that spending some significant time with your company financials and these industry benchmarks can go a very long way to making your company much more profitable.
Good hunting!!
Dan Judge
