The Value of Understanding Customer Profitability

Author: Dr. Mark Manfredo, professor in the Morrison School of Agribusiness at Arizona State University

As our competitive landscape shifts, it demands ag retailers sharpen their business acumen and hone their leadership skills to manage both the challenges facing agriculture today and in the future.

Everyone in an ag retail organization has an impact on its potential profitability and financial success. Furthermore, the disruptions we are currently seeing in supply chains, rapid technology adoption, and volatile commodity prices create uncertainty with respect to the financial performance of the ag retailer. Leaders at all levels of an ag retail firm must have a solid understanding of the drivers of profitability and value — drivers that impact revenues, expenses, operational efficiency and the cost of capital. This is particularly true in the presence of an increasingly risky market and policy environment.

On the flip side, it is equally important for ag retailers to understand the key profitability and financial performance metrics of their customers in order to best meet their needs. Will the product or service the ag retailer provides improve the operating efficiency of the customer? Will the product or service ultimately improve the customer’s sales, profitability and return on investment? Having a deep understanding of what drives customers’ financial success solidifies the role of the ag retailer as a trusted advisor. Indeed, successful customers lead to successful ag retailers. It’s a positive feedback relationship, and understanding what drives financial performance for both the ag retailer and the customer is critical.