Chicago, IL, August 9, 2006--In 2005, profit results for high-profit floor covering distributors hit a five-year peak, according to the annual survey conducted by the National Association of Floor Covering Distributors (NAFCD).
The NAFCD Performance Index Report, the association's annual profitability study of participating members, offers business owners a check-point on exactly where his or her company stands in the market.
The new high in profit results is in part from distributors changing their product mix to include higher-profit items, according to Dr. Albert Bates, founder and chairman of The Profit Planning Group, Boulder, Colo., the independent research and executive education firm that conducts profitability research for more than 100 different trade associations in addition to NAFCD. Participating NAFCD members completed a confidential survey about their businesses and submitted it to The Profit Planning Group, which then formed an aggregate with other respondents and analyzed the data in terms of sales size, line of business, and the like. The study provides NAFCD members the best industry-specific data available to direct the budgeting and financial planning process.
"What was revealed in this year's profitability study is that if the typical firm is to move toward high profit, it must identify exactly how the successful firm produces superior results," says Bates.
In the survey (based on 2005 data), the typical floor covering distributor had sales of approximately $37 million and a pre-tax profit of 2.0 percent. In contrast, the high-profit firm had sales of approximately $43 million and a pre-tax profit of 4.2 percent. This means that if the typical firm with the same $37 million in sales could move into the high-profit category, it would generate a profit of $1.5 million, representing an additional 2.2 percent – or $819,324 – in profits every year. This sizeable difference leads to two major issues that NAFCD distributors need to address, according to Bates.
"The first is an examination of the determinants of high-profit performance; what are commonly called the critical profit variables (CPVs). The second is the development of some sort of action program for the firm to reach the high-profit level. Both issues need to be well understood by every firm in the industry," Bates comments.
He points out that while no firm does everything well, "What the high-profit firm typically does is generate better performance on the few factors that really count." Across a wide range of industries over the last 25 years, Bates comments, three measures continually appear at the top of the list of factors that must always be the focus of management attention: sales growth, gross margin and payroll expenses.
Helping distributors manage the money-making process is the subject of Bates' upcoming keynote session at the NAFCD 35th Annual Meeting & NAFCD Distributor Marketplace, to be held Oct. 19-21, 2006, at the Renaissance Esmeralda Resort & Spa in Indian Wells, Calif.
In "Making Money in a Tough Market," Bates will explain that generating adequate profits continues to be a major challenge in distribution. However, in every industry some firms stand out from the pack. This session will focus on how they do just that. It will suggest three actions that are essential:
Creating Barriers to Entry--Competitive battles are not fought on every item on every transaction every single day. Instead, competition is waged between alternative business systems.
Focusing on the Profit Drivers--There are only two factors that drive profitability in distribution. They are not the ones you think they are. This session will identify them and discuss how they can be improved.
Ensuring the Internal Profit Understanding--There is a clear understanding within the decision-making ranks of how profit is generated or destroyed by employee actions.
