Given that 75 Food Suppliers in the latest OC&C Top 150 Index 2019 (see The Grocer 21-9-2019) have Net Operating Margins of 3% or less, it is worth exploring the consequences of one of their customers going bust, owing them £150k...
On a 3% Net Operating Margin, the supplier needs £150k/3 x 100 = £5m incremental sales to recover the loss...
On a 1.5% Net Operating Margin, incremental sales of £10m!!
Just one of 33 calculator tools in the latest version of NamCalc
Tuesday, 29 October 2019
Tuesday, 22 October 2019
Tesco Trade investment: How to demonstrate your value to the buyer
Buyer: "Surely Tesco are worth more than a £10k investment, especially for a company your size?"
NAM: "Given your business model and latest net margin (2019 Tesco Annual Report) of 2.7%, our ‘mere’ £10k is equivalent to incremental sales of £370k for Tesco…."
As you know, apart from cutting costs, the only way a retailer can generate net profit is via incremental sales.
In practice, for a retail business on a net margin of 2.7% before tax, a net margin of £10k = 2.7% of sales.
So, £10k/2.7 x 100 = £370k, the incremental sales required to generate net profits of £10k.
Now, which would you prefer, my little £10k trade investment or having to generate extra sales of £370k in your category….?”
[Note for NAMs: If your company generates net profits of say 4.5%, the £10k trade investment in Tesco is equivalent to incremental sales of £222k. In other words, you need potential incremental sales of £222k to even begin the conversation…]
Source: NamCalc, a 34 calculation financial tool-kit for NAMs
NAM: "Given your business model and latest net margin (2019 Tesco Annual Report) of 2.7%, our ‘mere’ £10k is equivalent to incremental sales of £370k for Tesco…."
As you know, apart from cutting costs, the only way a retailer can generate net profit is via incremental sales.
In practice, for a retail business on a net margin of 2.7% before tax, a net margin of £10k = 2.7% of sales.
So, £10k/2.7 x 100 = £370k, the incremental sales required to generate net profits of £10k.
Now, which would you prefer, my little £10k trade investment or having to generate extra sales of £370k in your category….?”
[Note for NAMs: If your company generates net profits of say 4.5%, the £10k trade investment in Tesco is equivalent to incremental sales of £222k. In other words, you need potential incremental sales of £222k to even begin the conversation…]
Source: NamCalc, a 34 calculation financial tool-kit for NAMs
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