Thursday, September 20, 2012

Profit per X: Retail economic engines

For a company to go from Good to Great, Jim Collins writes in his use the Hedgehog concept and economic engine:

"Profit per X

We understand what best drives our economic engine. We have identified our one economic denominator - profit per X - that has the most significant impact on our economics."

Normal retail: GP% -> Profit per X = Profit per $ sales

Contribution margin based pricing: -> Profit per X = Profit per SKU

Examples: IKEA, ALDI, Trader Joe's, (Costco?)

"Relative Contribution" -> Profit per X = Profit per m2

Example: GMROS: Gross Margin Return on Space calculations per SKU without GM% target constraints

Comments, questions or E-mails welcome: ajbrenninkmeijer (a)

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