In any competitive market, profit margins are slim. For retailers and B2C firms, earning $10 million in pre-tax profit takes a lot of sales. Even more so for lower-margin wholesale distribution or those with B2B models.
Consider the fact that one publicly traded wholesale distributor earns about 1% pre-tax profit. That means they must sell $1 billion to make $10 million in pre-tax profit. The remaining $990,000,000 is spent on Cost of Goods Sold (COGS), expenses and personnel.
Profit recovery services delivering even 1/10th of 1% makes – can make a transformational difference for businesses with low single digit bottom line earnings.
What I’ve seen over the years is that many professionals don’t realize how much of their net profit is falling through the cracks, or how much value an organization like PRGX can bring to their bottom line.
The penny drops: Being converted to the value of profit recovery
Not even I understood the value of profit recovery at first. In 1982, I joined a family-owned firm, working my way up through roles in retail, wholesale and foodservice divisions, an experience that helped me understand the profit models and operations of each industry in granular detail.
One day, our CFO and SVP of Merchandising called a meeting with the category management and finance directors to solicit our feedback. They opened the meeting like this: “We have a proposal [from PRGX] to deliver net profit without any new sales or new staffing required.” “This requires us to share all the deals you have negotiated, and they will verify that we have collected all the value that you have negotiated.”
My colleagues and I spent the rest of the meeting asking questions like:
- “How can it be possible to add net profit without sales growth or expense reduction?”
- “Why do we need a third party to ensure we collect every penny negotiated?”
- “We are a penny profit business and won’t this add expense?”
Other questions were around the confidentiality of negotiations and how much time would be needed from an already very busy team.
I couldn’t have predicted that one day my career would lead me to work for that same third-party professional services firm. The questions we asked 25 years ago are still relevant today, and are asked by many of our new clients. Here’s how we answer them.
How PRGX delivers for wholesale and retail clients alike
PRGX recovers over $1.8 billion of net profit annually for a wide variety of industries and clients. While we may not be a household name (yet), we do deliver value and recover profit for some of the world’s largest and best-known corporations – even those who use the most sophisticated systems and processes use PRGX for profit recovery each year.
PRGX began serving retailers in 1970, one of the lowest net-profit percentage industries where every penny counts. Fifty years later, we’ve added millions to client net profits annually for all sorts of industries, without increasing client sales or adding client staff.
My experience in wholesale distribution and foodservice helped me expand PRGX’s services to these industries too, and we’ve even successfully introduced PRGX to energy corporations, natural resource firms, pipelines, financial institutions and manufacturers.
For distributors and wholesalers, the net profit impact PRGX can deliver as a percentage of total bottom line can be even more significant than it is for retail. COGS is a wholesaler’s largest expense, and the range of recoveries from audited spend can be anywhere between 0.06 to 0.12%, a meaningful addition to net profit. And for distributors, getting even one-tenth of 1% from merchandise, their biggest expense, can be a significant boost to low single-digit net profit before tax.
To put those figures in further context: if you capture 99.9% of every dollar negotiated, you are doing very well. However, on $1 billion in spend, you would miss $1 million in pre-tax profit. These percentage recovery figures may seem thin, but every dollar of net profit growth matters.
Beyond profit recovery: how PRGX minimizes fees and time investment
As a past client, I witnessed first-hand how PRGX not only added millions in net profit to our bottom line every year, but how they helped identify areas of opportunity for improvement. The industry best practices they shared with us were accepted widely by our suppliers.
When I was a client contact for five major consulting firm initiatives, each one added value. However, all required considerable time investment from me and my staff to educate them on our business realities, whether it was for retail or wholesale distribution. In addition, there was a significant fixed cost spent on consulting fees long before we realized any actual profit.
By contrast, aside from initial meetings with PRGX and the granting of access to data, the process of profit recovery required minimal time from me or my staff. And there was no large spend prior to profit realization; PRGX only invoiced as a percentage of actual profit recovery.
While leading teams as a client of PRGX, each year my teams closed gaps identified by PRGX wherever possible. PRGX provided us with an annual report and advice on best practices to assist with process improvements in addition to net profit increase.
As someone on the other side of that fence, I now realize that the amount of data transferred is hugely important to the bottom line. The more data that PRGX can acquire from clients, the better the intelligence we can visualize on their behalf.
Why our cross-industry experience translates into unrivalled profit recovery
The primary causes of profit leakage — which later becomes profit recovery delivered by PRGX — came from miscommunication, data entry mistakes and other sources of human error. Not even the best systems and processes in the world’s largest firms have been able to eliminate these problems.
The investments PRGX has made over the last 50 years in technology, and the experience of the PRGX teams supporting many Fortune 500 companies, enables profit recovery performance with greater dollar recovery than internal teams alone can recover.
Here’s the other thing about data acquisition: PRGX standardizes and cleanses master data, ensuring that human error is minimized at every stage.
Many of the largest companies have procurement teams focused on cost negotiations. But these same companies invest far fewer resources to ensure benefits negotiated are fully received — and that’s just one area in which PRGX really adds value.
Thanks to our deep knowledge of industry practices and common pitfalls of which vendors can intentionally or unintentionally take advantage, PRGX has consistently uncovered sources of profit recovery for clients over the past 50 years.
Most companies for whom I’ve worked or consulted continue to enjoy millions of dollars in net-profit recovery via PRGX services, adding significant value to their bottom lines every year.
The value that PRGX delivers was once summed up by my CFO and Lead Merchant as a source of net profit without any new sales or staffing required — that’s as true today as it was 50 years ago.
Michael Rushton, VP Business Development at PRGX, has held senior positions in supermarket retail, home improvement retail, grocery wholesale, foodservice distribution and consulted for pharmacy retail, CPG manufacturers and many others.