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DPP what is it?
DPP stands for Direct Product Profitability. Essentially, it is the profit, a unit of product earns per cm.How to calculate DPP
To calculate DPP, firstly you should multiply the unit sales volume by the profit margin of the product. This will give you the overall profit for that product.You should then divide the profit by the shelf space it uses, e.g. $2000 divided by 100cm, which equals a contribution of $20 per cm - Direct Product Profitability of $20 per cm.
Consequently, some high volume selling products with larger sized dimensions may have a lower DPP per cm figure than some lower volume selling products, because they use less shelf space.
How to maximize your range using DPP per cm
During the range review process, you can use the DPP contribution per product cm, to increase the overall space contribution .Additional factors in calculating DPP
There are many other factors you can use to calculate DPP.For example, if a supplier is unreliable, you could add on a cost to the product to reduce the DPP.
Also, if a supplier provides poor customer service, an additional cost may be added for the time it takes to sort out problems.
Or perhaps, the supplier only sells one product, so the cost bourne by the purchasing and administration department to source that single product may reduce the product's DPP contribution per cm.
You could factor in wastage / breakages figures, the cubed volume of the product, as well as depth of range considerations, etc. The list can be endless.
Don't let DPP become too complicated!
Sometimes, if you let it, or want it to, DPP can become very complicated. But, don't feel you have to use every factor you can assign a cost to, just the ones that you think are important for your circumstance.DPP should use common sense
Most importantly, with DPP, you should ensure there is a healthy dose of common sense, when you assemble your product range.DPP reduces the chance of bad performance
A retailer once said to me that retailing feels like playing darts, only that you are blindfolded, with a moving dart board and the best you can expect, if your lucky, is to land on the board. Coincidentally, he didn't use DPP, more the 'Candle in the Wind' approach.Why should CPG and FMCG manufacturers understand DPP
DPP can dramatically transform their business
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