Look Through The Order-Size Lens for “Wow!”
Do you work for an ambitious, curious distributorship? Have you created a customer, net-profitability ranking report to find shocking insights that conflict with conventional wisdom?
Like? Forget the 20/80 rule: 20% of the customers generate 80% of the sales or margin dollars. The new findings:
- 10-20% of customers yield 100 – 140% of net profits
- One out of five, big-margin-dollar customers are astonishingly unprofitable due to the fulfillment costs of too many small-dollar picks/orders.
- The bottom 50% of small, active customers typically yield about 5% of the margin dollars, but on 18-to-25% of all transactions. The pool’s fulfillment costs exceed margin dollars for a significant loss. And, the stories behind the ten-worst, small accounts are preposterous.
- The size of – the margin dollars in an order and the activity-cost dollars for an order – both matter.
- Best customers (with high, average, margin-dollars per order) pay for all losers with a residual that is the company’s operating profit.
Most of your competitors (fortunately) do not have “cost-to-serve” models.
SO: Why Not….
- Hyper-focus on improving service value for best customers and a few, big targets like them.
- Fix losing accounts (with order consolidation solutions) to free slack to reinvest in plan #1.
- Implementing 1 and 2 increases: average order size which boosts margin-dollars per Full-Time Equivalent Employees (GM$s/FTEE). More margin dollars per FTEE affords both increased total comp and profits. Paying more will – recruit, retain and engage – better quality employees. 1-3 become a virtuous, reinforcing cycle.
- Grow best-customers’ sales faster due to customer-centric, service-value creation. Then, purchases and rebates from all suppliers grows as a by-product.
- Reward all stakeholder groups: profitable customers, employees, shareholders and suppliers.
- Skunk competitors by: stealing some of their cream accounts; and gifting them some incorrigible losing account busy-ness. Stress their service levels while their profits evaporate. How sad!
Why Don’t Distributors Act On This Advice?
Financial – surveys, analysis, beliefs – dominate habitually. The financial lens does not see order-size-economics and the variances in customers’ order-size patterns. And, enough, well-paid, entitled, veterans will fight for their comfy, status quo.
The Anti-Dote? An All-Win Story; Easy First Experiments; and a Re-education Course
Are you ambitious and curious? If so, check out my charitable solutions for this cause: