My buddy Dave Gerbino and I are speaking about product profitability at the ABA Marketing Conference in San Antonio next week (Monday, September 23rd, 11am if you're in town). While developing our presentation, Dave drops Bar Rescue on me.
Never heard of it, I said. Apparently, it's a Spike TV reality show where a bar expert (great job!), Jon Taffer, helps owners turn their flailing establishments around (see video clip).
Dave said product profitability reminded him of Taffer badgering bar owners for their liquor cost. How much are they paying for their liquor and what is their gross margin? Most didn't know. Should they know?
That's a rhetorical question. But, let's be honest, most of us don't know our liquor cost. I read fascinating articles and hear endless speeches on big data, data analytics, deep data dives, relationship profitability, customer profitability, and segment profitability. But nary an article, speech, or mention of product profitability. It is the Rodney Dangerfield of big data. It gets no respect.
Its absence is peculiar. Peculiar because it is a pre-requisite for most other profitability endeavors. How do you determine customer profitability without cost per account? That's an output of product profitability. Go ask your deposit operations clerk how she spends her day. Will she say she spends two hours working on your Main Street branch overdrafts, or ABC Company's wire transfers? No, she'll say she spends two hours working on checking overdrafts.
Do you calculate customer profitability using Return on Equity (ROE)? How do you calculate the "E" allocated to the customer? You do it by risk characteristics of the product(s) used by your customer. Again, an output of product profitability.
So where is your product profitability? What's your liquor cost?
FYI: Dave Gerbino and I will be speaking more on this subject at the ABA Marketing Conference on Monday, September 23, 2013 at 11am in San Antonio. They think so many marketers are interested in their liquor cost that they made us repeat our performance at 1pm.