How thin margins work.
WHAT THE STRUCTURE IS
Buy price, sell price, and a narrow gap between them.
WHAT TO CALCULATE
Gross margin per unit and per case Cost of delivering to the customer Cost of the credit extended Cost of stock held
WHY COST TO SERVE MATTERS
A small customer ordering frequently can consume more margin than they generate.
HOW TO CALCULATE IT
Delivery cost per drop, divided across the value delivered.
WHAT THAT REVEALS
Minimum viable order value.
WHAT TO ESTABLISH
That minimum, and enforce it.
WHY ENFORCE
Below it, every delivery loses money.
WHAT CREDIT COSTS
The money tied up for the period, plus the risk of not collecting.
HOW TO ESTIMATE IT
The funding cost over the payment period, plus expected bad debt.
WHAT TO ADD
That figure into the price, or offer a discount for immediate payment.
WHY
Credit is not free and distributors give it away.
WHAT STOCK COSTS
Capital, storage, handling, obsolescence and loss.
WHAT TO CALCULATE
Stock turnover: how many times you sell through in a year.
WHY IT MATTERS MORE THAN MARGIN
Thin margin turning many times earns more than fat margin turning rarely.
WHAT TO MEASURE
Margin multiplied by turnover, by product.
WHAT THAT REVEALS
Which lines actually earn.
WHAT TO DO ABOUT SLOW LINES
Reduce, or stop stocking them.
