December 2004              return to newsletter contents page

Closing the Profit Gap

For the first time in several years, profitability is on the rise. However, the profit improvements are not being enjoyed in equal proportion by all firms.  As a result, firms are splitting into two distinct categories:

• Business As Usual—For most firms, profits are improving steadily, but at an agonizingly slow pace.  Most of the concerns of the recession have been eliminated, but the benefits of the recovery are modest.

• Top Profit Producers - The upper tier of firms that are experiencing some of the best profit results in their history.

One of the key characteristics of the top profit producers is that they have a plan on where they want to go.  That plan is based upon specific profitability benchmarks. AVDA can help supply you with the benchmarks needed to be a top profit producer through the 2005 PROFIT Report.

The report will not only present a profile for the typical firm in the industry, it will outline the results obtained by the most successful ones.  It will help identify a path for improving every firm’s bottom line.

Each participant in the PROFIT survey will receive a copy of the summary results and two important tools to help in improving profitability. The first is a printed report comparing the firm to specific benchmarks. The second is a computer-based financial analysis program.  Both of these tools help management delve into the ways their financial performance can be strengthened over time.

The Profit Improvement Profile

Every participating firm receives an individual company report that compares their firm's results to similar firms. Such comparable firms may include those with the same sales size, in the same geographic region, or with the same product mix. The report, called the Profit Improvement Profile (PIP) also indicates how the firm compares to the industry's most profitable firms.

The PIP provides data for more than 100 different measures, ranging from sales per employee to inventory turnover to gross margin as a percent of sales.  The report also includes all key financial ratios, and a complete percentage income statement and balance sheet.

In addition, each of the key measures is accompanied by a thorough discussion explaining why it's important to the business.  In short, the PIP provides a detailed analysis of where the firm stands financially.  However, it goes one step farther than just reporting history. It also indicates how the firm should go about improving performance. It lays out a complete game plan indicating what the firm should do and the profit results that can be expected. This combination of features makes the PIP an exceptionally valuable management tool.

Profit Toolkit Online—The 2005 Version

Profit Toolkit Online is a web-based program available only to participants in the PROFIT report project. Every year it provides an interactive view of a different aspect of financial performance. 

The topic for 2005 is Evaluating Profit Trade-offs. This will allow firms to look at issues such as pricing to determine if it is better to raise prices or lower prices based upon the impact on sales. 

The program is extremely user-friendly and requires only that the firm download the Profit Toolkit from the web. The program uses Microsoft® Excel, which most firms have readily available. After downloading, it is only necessary to enter a few select numbers and the firm can then develop a plan quickly, easily and accurately.

What About Confidentiality?

A lot of firms are concerned about taking part in such a survey. They shouldn't be because the Profit Planning Group, the company that conducts the survey, holds all company data in complete confidence.

The Profit Planning Group is the largest firm of its kind.  It conducts financial surveys in more than 100 industries each year and reviews over 8,000 financial statements annually. It has been conducting such surveys for more than 25 years and has never had a confidentiality problem.

Becoming a Top Profit Producer

If you are interested in improving profitability, don't overlook the AVDA PROFIT survey when it comes in the mail.  All you have to do is fill it out, which takes a minimal about of time, and send it in.  It couldn't be easier.  It couldn't be more important in improving your profit performance.  Surveys will be mailed to all AVDA Active (Distributor) members on January 14, 2005.