Issue link: https://www.e-digitaleditions.com/i/72524
The General Session Headlining Day 2 of the meeting, popular FEDA speaker Michael Marks returned with a nuts and bolts presentation on "Making the Market Available Profit." an ongoing level of profitability return measured in terms of invested capital or assets or rev- enue that represents the most that a professionally managed business can expect in a given set of market conditions. "It's not gross margin, W " says Marks."It's not return on sales. It's not return on assets. It's not any one magic thing….The stan- dard rule of thumb from a million miles a way is compared to a population of people that are invested similarly to you in a given industry, am I a top quartile (think PAR results)? The other bench mark, and this is the bench mark for pri- vate equity, is if I'm going to go invest in a business, I need to get a 20 percent return on invested capital. " What are three mistakes that tell people you're not making the market available profit? According to Marks, one of the most common is blanket pricing changes in response to a customer complaint."This is what happens in your dealer- ship, and says you're gauging me.The salesperson tries to fix it by changing the price. But what they do is change the multiplier on the customer, based on a specific product. Here's the problem:When they change the multiplier in most of your sys- tems, they change the multiplier on everything that customer buys, not just on the product they were sensitive about. In other words, a customer complains about a price specifically....We change the multiplier to preserve the relationship, but we've now just discounted everything and low- ered our margin. " The second mistake made in terms of pricing has to deal with the last price paid (LPP), contin- ues Marks."Sales reps are rushed, so what drives your world is LPP. All of a sudden, a customer calls and they want to buy something, "he says. "The salesperson takes a look, pulls up the last price paid in the system, assuming that the LPP is correct. By the way, for dealers, this is like a big black 'F' across your financial state- ment, if you're not keeping up with manufacturer price 20 FEDA News & Views Congratulations to Convention Chair Mason Greene (far right) and Assistant Chair Joe Schmitt (far left) on a great meeting. Also pictured are Joe Dodds, Schmitt's partner and co-owner of Rapids Wholesale Equipment, and speaker Michael Marks. "he says."A customer comes in and talks to a sales guy increases. Some of you are two and three price increases behind with your big customers.The sales rep is afraid to pass it on. "The key thing on last price paid is it is the path of least resistance and people do it all the time.You want to have fun? Go to all of your sales reps and take all of the line items they write every month and say I want to know the percentage of line items that you write that are not at LLP. If you raise the price one penny, it's not LLP. Then you just start to measure it because on a de facto basis we've told everybody that LLP is ok.That's the most expedient thing. " hat's the Market Available Profit? In textbook terms, it's "When I was young, I thought it was all about the money. Now that I'm old, I realize I was right."--Speaker Michael Marks, the author of Value Creation Strategies for Wholesaler Distributors