Category Archives: Cost-to-Serve Math

181. ALL-WIN, QUID PRO QUO (QPQ)

QPQ For The Good

Politics is giving QPQ a bad reputation. But, “this for that” can also be a selling tool for turning win-lose customer requests into win-win outcomes.
Distributor reps can use QPQ for transactional fairness.

“Mr. Customer: you want a lower price? Understandable! How can we turn a – you win, I lose event – into a win-win transaction? Perhaps a bigger order or the promise of greater future purchases?”

Continue reading 181. ALL-WIN, QUID PRO QUO (QPQ)

175. Melting-Unicorn Wisdom for Distributors

Unicorn Melt-Downs?

Valuations for WeWork, Uber, Blue Apron, etc. have been tanking. They all prove that a company’s business service-cost model can’t spend more costs on a unit of activity than the unit’s margin-dollar content, and then make it up on volume.    

The same economic reality hit many retail dotcoms back in 2000. Remember eToys? In ’99, they were averaging $20 in margin per order while spending an all-in cost of $300 per order for fulfillment.

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166. Digital Tools Aren’t A Profit-Growth Strategy (Part C)

Two Digital Selling Tool Paths:

  • Get a big, cool, web-selling site for both new and old customers.
  • Visit your most net-profitable customers to identify pain-points that can be reduced by applying off-the-shelf digital tools.

Case Question: How to Web-Sell Small, Losing-Accounts v. Profit Giants?

A one-location, $10MM distributor (packaging, jan-san) subscribes to a cloud Customer Profitability Analytics (CPA) service. They decided to segment customers by net-profitability, and digitally resell them accordingly. Here is what they did for two very different customer segments.     

Small Losing Accounts were 50% of the 1000 active accounts. They totaled 5% of margin dollars, but 21% of all orders. The segment’s service costs far exceeded the margin dollars for a big loss. The distributor’s fulfillment, process-cost structure is incorrigibly high v Amazon’s. They can’t make a profit on retail-sized orders at wholesale, list-pricing-plus and free freight.     

Solution? They created a “Small Account Division” with its own P & L and announced these new terms:   

  • Increased prices and a higher minimum order requirement.
  • Unbundled delivery charge.

Plus, these new, order-entry and order-size incentives:

  1. Minimum order size drops IF a customer enters an order via the web using a credit card.  
  2. The delivery charge stair-steps down to zero as the order size increases above the minimum.
  3. Then, by continuing to build the order even higher, additional price discounts/savings can be earned.  
  4. For order-building ideas, two SKU-suggestion lists were made available: A) Previously bought SKUs; and B) top 20 most-popular SKUs.   

Results? 10% of the customers left, but the new division became profitable.

Profit Giants’ Facts:

The top 20 most net-profitable accounts yield over 100% of the operating profits. (The company’s customer cross-subsidy stats: the top 30% accounts yield 140% of profits; bottom 70% lose 40%; so, 100% yields 100%.)  

Another 20 target accounts could potentially match the best-accounts’ profits. The entire organization is now refocusing extra efforts on the combined 40 accounts.  

How to e-sell these accounts better? Ask them! A comprehensive survey yielded a grid of opportunities including semi-customized e-integration solutions for each.

Because the company knows its unbundled service-activity costs (as does a 3PL firm), they – as an experiment – asked some target accounts:

“Would you be interested to compare your current, supplier-replenishment system(s) with one from us that starts with our open-book costs, and adds fees for your selected, unbundled services with maximum e-integration?”

80% said “Yes!”.

Conclusion: Get Customer Profitability Analytics and E-sell customer segments differently.

*This is the third and last of a series. The first two are my last two blogs at www.merrifieldact2.com .

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158. Skills for Partnering Gazelle Accounts

Net-Profit Gazelles?

Amongst your most net-profitable accounts, find the ones that have also been growing their sales, margin, and profit dollars fastest (year-over-year). These are “Gazelles”. Partner them better to increase your odds that they will continue to grow you for years.

Skills for Better Partnering?

Reps can’t do partnering on their own. Bigs typically herd reps into seeing buyers in silos with narrow agendas and metrics (like “price”). You must pitch the customer honcho who can see and change the overall procurement process.  

Continue reading 158. Skills for Partnering Gazelle Accounts