Tilting
the Playing Field
Strategy for 2015-2016
Today’s Purpose
• suggest a strategic direction for 2015
• synthesis of information from
our experience and analysis
• shaped by outstanding results
• discuss a new strategy
Concepts
Trading Customers
“the market leader
is the company
with the lion’s share of the
profitable accounts”
― Bruce Merrifield
Trading Customers
Us
customers
Them
How Money is Made
Really!
How Money Is Made
$GP
$CTS
9
What Makes Gross Profit
$GP =
$revenue
X
margin%
+
fees
What Drives Cost-to-Serve
orders
picks
invoices
deliveries
$CTS ≈
margin%
add-on
fees
deliveries
$revenue
orders
invoices
picks
How Money Is Made
$3
$7
$5
Bottom Line
13
How Money Is Made
$10
($25)
($50)
Bottom Line
14
Whale Curve
Whale Curve
PIP (Peak Internal Profit)
$5.5M
Realization
27%
Customer Cross-Subsidies
17
Customer Cross-Subsidies
• entire basis of current business operations
• good customers support their
dysfunctional competitors
• hidden by accounting systems:
competitors without WayPoint can’t see this
• would you say this to a great
customer…?
Pricing
Can Confer Price Advantage
Stokes Merrill
Revenue
$272,743
Gross Profit
$57,703
Selling Exp
$4,454
Order Entry Exp
$1,611
Whse Exp
$38,212
Delivery Exp
$8,516
G&A
$10,279
Cost-to-Serve
$63,072
NBC
($5,369)
Millennium
22.1%
3 orders / week
762 picks
4 deliveries / wk
3 invoices / wk
23.1%
Revenue
Gross Profit
Selling Exp
Order Entry Exp
Whse Exp
Delivery Exp
G&A
Cost-to-Serve
NBC
$261,580
$43,161
$3,589
$1,243
$21,212
$5,076
$7,709
$38,831
$4,331
15.8%
2 orders / week
423 picks
2.5 deliveries / wk
2 invoices / wk
14.8%
Customer Cross-Subsidies
21
Competitor’s Whale Curve
New Strategy
Objectives
• have all the most profitable accounts
• have no unprofitable accounts
• deliver the best customer experience
• have a significant price advantage
• lead in profitability
• reward contributors
Strategy: Road Map
1. reform or trade profit drain accounts
2. reduce transaction counts (CTS)
3. build price advantage by reducing
cross-subsidies
4. aggressively pursue target most
profitable accounts with using
service and pricing
Strategy: Steps
5. reduce margin-support policies
and actively trade GM% for CTS%
6. incent by profit to motivate and share gains
(extraordinary pay for extraordinary profit performance)
7. build GP with intelligent pricing
and add-ons
8. build a better breed of customer
Competitors’ Limiting Beliefs
• every sale adds increment to bottom line
• must win every account
• GM% = profit, therefore margins
must be defended (lower margins
will hurt profits)
Strategy: End State
• 50%-75%+ of the most efficient (profitable)
customers in the market
• profit generation 2x industry rates
at margins 5%-10% below market
• market-leading concierge service and
corresponding reputation
Conclusion
• use what we know about profit mechanics
• new action on cross-subsidies
• tilt the playing field:
• get the best accounts
• trade off money losers