"The first question you need to ask is, why do I need to know this?" says Dent. "It is a naÔve, but very powerful, question, which needs to be mulled over very carefully."

He adds: "It is also important to ask who will be using the data"  He feels the supplier should really think this through carefully.”

He adds: "There may be limits on how much you want to disclose. One of our clients decided that it did not want its account managers to know the precise profit margins on every product line, as this might discourage them from selling the entire range and lead them to focus only on the most profitable lines."

Dent also warns against settling for what you can measure, rather than looking at what you should be measuring. "People often settle for what is easy to measure. This leads to incomplete data, which cannot be relied upon. For instance, a partial measure of how much it costs to serve a given account is of little use." 

You should also accept that measuring channel profitability is a complex process. Dent says: "Channels are complex ecosystems. Often, there are influencers who do not resell products but who have huge power. Your measurements have to reflect this." He also says it is vital for companies not simply to take a snapshot. “Products have lifecycles and so tend to go from high-margin, value-added channels through to commodity players such as retail.  Suppliers need to understand where their products are in this lifecycle.”
Dent outlined the standard ratios that are often used (see graph 1) in increasing levels of complexity.

Bailey feels that accountants tend to be very good at measuring what he calls output numbers, such as profits or capital turnover, but that these are meaningless for the account managers.  He adds: "We decided that the important thing for the sales force was to measure the real drivers, which determine things like profit, rather than profit itself."  The trick is to come up with data that is a synthesis of marketing and financial data.

You can draw an analogy with a team of researchers seeking to understand youth crime.  The criminologist will measure the number of single-parent families, drug rates or educational attainment - the causal factors behind crime, rather than focusing on the output “profit numbers” - such as the number of crimes committed."

For Bailey, these drivers include the cost-to-serve of a given account, the relationship strength of an account, the average price of products to an account and the asset reduction and inventory supply flow.

He adds: "Providing the sales force controls these drivers, then the profits will follow."

Bailey hangs 25 simple questions off each driver.  For example, account managers are prompted, when looking at average prices, to consider whether the retailer is displaying and promoting the products that really make the most money. By the same token, Bailey argues that it is important that the numbers focus on things the sales force really can control.  "Very few salespeople can understand a balance sheet.  Nor should they need to. The trick is to measure the things where they do have some control, such as accounts’ receivable levels, inventory levels and supply flow."

He adds: "I don’t believe a salesman should be chasing for cheques to be paid. But equally, no sales manager should be allowed to put together a plan without knowing the account’s receivable costs."