Sunday, February 17, 2013

Secrets & Lies: Solutions Profit Model (Part 2)

Few companies, of course, lay out their business model as forthrightly as Howdens does and, in the wake of Who Says Elephants Can't Dance?, every company tries to pass itself off as a solutions provider.

The reward for successful implementation of the solutions profit model is loyalty and pricing power.

And loyalty and pricing power ought to show up in its financial statements in the form of 

(i) high and stable (or, in the growth phase, high and rising) gross margins,

(ii) high and stable (or high and rising) operating margins, and

(iii) fixed asset turns that remain steady, even during severe recessions.

And, in context:

There are several different profit models at play in the business of distributing building supplies and each has its own fingerprint, as one can see.

The solutions model is the most profitable and the most difficult to compete against.

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