Pat Bailey was shocked by the response. As finance director for Electrolux Europe, Sales and Marketing Division, he had arranged a meeting with half a dozen other blue-chip household names to compare ways of measuring the profitability of different retailers. 

He found that none of these prestige names had any clear idea of how profitable different retailers were for them.  "They had no numbers to back up their hunches on the profitability of their accounts."

He smiles, and says: "Perhaps I shouldn’t have been so surprised.  Before we implemented a system internally I asked our account managers which accounts made us money and which lost us money."

The result?  "They got the right answer half the time. Yes, there were a few very obvious cases where the account managers could gauge whether an account was a loss-maker. But, with many, they were unable to gauge hidden costs. An account with a high gross margin might be horrendously expensive to work with. Or it might be tying down a lot of assets, such as inventory and accounts receivables.  There was some surprise when I revealed the real figures!"

Bailey’s experience is not untypical.  In many suppliers, when it comes to numbers the sales force is still banging the rocks together.  Some sales forces are still measured and rewarded according to revenue.  Many have now migrated to gross profits. But few know what the cost-to-serve for an account is. Fewer still measure assets incorporating assets and inventory costs.

What measurements you choose should depend upon your needs.  But, for most suppliers, the gold standard is probably something that measures value creation – the real profit you make from an intermediary, taking into account cost-to-serve, assets and the cost of capital.

There are many good reasons why large companies struggle to measure channel profitability.  Often, internal accounting is based on geography or  product divisions.  Sales staff tend to shy away from using complex numbers.  And some companies question whether account managers should have access to profitability data at all.

So perhaps the first question to be asked is, why bother?

The answer, for Julian Dent, chief executive of VIA International, is simple. "Hugh Collum, finance director at GlaxoSmithKline, once said: ‘If you don’t keep the score, you are just practising.’ He is right."