Payroll, to a certain extent, has a mind of its own, and lowering these costs is far from easy. Most of the work in this regard probably will have to be directed at making productivity enhancements. However, measures of this nature still might not make enough difference to boost the PPR. Eventually, you must think the unthinkable and determine what services actually need to be eliminated, rather than just made more cost-effective.
At the same time, attention also must be devoted to the gross margin side of the equation. In distribution over the past several years, there has been a general tendency for companies to expand their service base without charging more for the added value. More attention needs to be given to fee-based services and, ultimately, you need to address basic pricing structures realistically.
If you’re adding value and losing margin at the same time, it’s time to rethink your firm’s value proposition. Better control of the PPR will help you close the gap and ultimately will lead to greater profitability. —Dr. Albert D. Bates is founder – and president of Profit Planning Group, a distribution research firm headquartered in Boulder, Colo.
The Power of PPR By focusing on making systematic Personal Productivity Ratio (PPR) reductions over time, dealers can improve their value propositions. The second and third columns below illustrate the positive impact on pre-tax profits that can be achieved by lowering PPR by one percentage point per year.
Survey Facts The NLBMDA’s “Cost of Doing Business Report” is compiled annually each spring by the Profit Planning Group (PPG), an independent distribution research firm based in Boulder, Colo., that has been conducting financial surveys for more than 20 years. The results included in this article represent 267 participating companies that completed the questionnaire in May 2003.
In return for participation (which costs $75 for NLBMDA members and $125 for non-members), dealers receive both an industry-level report and an individual performance analysis, the latter a 25-page report comparing the participants’ statistics to overall industry benchmarks.
For more information on participating in the 2004 survey, contact the NLBMDA at 800.634.8645 /202.547.2230 or online at www.dealer.org.
