Issue link: https://www.e-digitaleditions.com/i/92325
The question of contribution is one I hear in almost every talk and meeting. After all, the question goes, if our warehouses and trucks are not full, isn't it better to take some business that helps cover the cost, than to leave them partly empty? may be losing money on this category, but the logic is that the company will make it up in other high-margin pur- chases. Almost every supplier has business that looks like this. Essentially, the com- pany is making an investment in pricing a traffic driver below full cost in order to generate high-margin sales else- where. The strategy mirrors the product- line logic analyzed in the prior section, but the problem is very few companies actually track this in order to determine the real return on investment. As in the case of the product-line profitability, a profit map will quickly show which cus- tomers, over time, produce a threshold return on investment on the traffic driv- ers they consume. Armed with this knowledge, the com- pany can build a smart set of incentives and linkages to move customers to a desired buyer behavior, and where a customer is simply cherry-picking the traffic driver, the company can develop appropriate measures to minimize the losses. Profit logic What these three common profit pit- falls have in common is that each seems so logical. After all, why should- n't you take business that helps pay for the overhead? Why shouldn't you carry some losing products in order to make money on the whole line? Why should- n't you offer some loss leaders or traf- fic drivers to draw in customers who will buy high-margin products? The really big issue, however, is determining where the logic produces sound results, which is easier said than done. In most companies, the policy that fol- lows from the logic is applied indis- criminately, rather than targeted specif- ically at customers and situations where it makes sense—and not where it does- n't fit. The power of profit mapping is that it allows you to draw a line in the sand and make this precise distinction. In this way, profit mapping enables you to build your Islands of Profit, while at the same time draining your Sea of Red Ink. u !"#$%&'"()$*+,*-#.$/01234(.534..---, November/December 201 2 65 67,87*+,*---,,9:;9<*-#=