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Profit Improvement Report ("The Race to Provide Services Nobody Really Wants" continued from page 32) 40.7 percent and the bottom line rises to 2.4 percent of sales. The final column, in very sharp contrast, reflects a situation where payroll costs increase due to the additional services offered, but revenue is stagnant. This might represent a situation where all of the competitors increase services at the same time resulting in no measurable change in market share. The economic impact is dramatic. Profit declines by $120,000 or 19 percent, even though the increase in payroll was only 3 percent. In short, A RETURN ON INVESTMENT SHOULDN'T INCLUDE your kid moving back in with you after college. The SweepMaster 400 is tough, reliable and designed to deliver ROI. It provides the easiest access to the engine and hydraulics, uses minimal wear items and incorporates no universal joints or chains. Not to mention, focuses on operator safety and provides years of service. Visit www.laymor.com or call 800.323.0135. service expansion programs must generate the revenue to cover their costs and produce enough additional revenue to drive higher profit. Research in distribution suggests that in many instances service expansions are less likely to reflect the second-column economics in Exhibit 1 than third-column ones. Simply put, the value of the additional services may not be there. A Profitable Service Profile In building a service profile that drives sales growth faster than payroll growth there are two opposing strategies that can be followed. First, add or strengthen truly profitable services. Second, minimize or eliminate unprofitable ones. As simple as this may sound, it actually has somewhat counter-intuitive implications in terms of the potential changes in the service profile. Service Strengthening – Research conducted by the Profit Planning Group indicates that with very few exceptions, customers do not desire any additional services from distributors. Instead, they would like some existing service components strengthened. In particular, they want better performance with regard to inventory. The expressed inventory needs were two-fold. First and foremost they desired an improved in-stock position. Second, they desired a broader assortment to facilitate the ability to engage in one-stop shopping. To a real extent this is a serious condemnation of distributor performance. The most essential role of distribution is product availability. Failure to perform adequately in this arena is simply unacceptable. The pressures associated with cash flow are an excuse for inventory inadequacy, but not a valid reason. The economics of improving service through better inventory performance are extremely compelling. Additional inventory investment comes with a carrying cost implication. However, in today's environment of low interest rates, carrying costs are dramatically 34 | www.cedmag.com | Construction Equipment Distribution | June 2013 32_Profit_Feature_KP.indd 34 5/31/13 2:51 PM