Feb 13, 2021: What a Week
Unless you were unplugged, the week of Feb 8th had chaos on many fronts: pandemic, impeachment, short squeezes, money printing, etc. With the distractions of the news and the exponential infoglut at your fingertips and dinging from your smartphone, where should your company be focusing its attention?
The 20/80 Rule is Now the 10/130 Rule
Wilfredo Pareto observed in 1906 that 20% of the Italian population controlled 80% of the farmland (a proxy for wealth). Back in the ‘70’s, a typical distributor might find that 20% of the customers generated 80% of the margin dollars. But, with cost-to-serve analytics, distributors are finding today that 10% or less of their customers are generating 120 to 140% of their net-profits. And, the top 1% could yield 50 – 90% of net-profits.
The vital few are paying for all losing customers with a remainder called: “operating profit”. Why have so few accounts become so precious?
In most, mature channels, players at every level – factories, distributors, and end customers- are consolidating for several reasons:
- Private equity has more dry powder than there are deals to do. They keep rolling-up channel companies.
- Only 3% of mature businesses in any industry are (statistically) perpetual innovators. They invent value and/or lower costs to gobble market share from laggards that in turn fold or sell to financial consolidators.
- And, for distributors there is always a sea of small (potential) customers. These independent owner-operators don’t innovate or grow. But, they love wholesale services and prices for their retail-sized orders. Their service-cost dollars exceed their margin dollars for losses. Distributors without cost-to-serve analytics unknowingly bleed from a multitude of small-dollar: picks, orders and customers. They will fold or merge into competitors that are also ignorant of order-size economics and statistics.
Filter Out the Chaos to Team Focus on 10 Key-Accounts Per Location
Every location should target about five: most net-profitable customers; and, best growing target accounts. Make sure that every employee:
- knows them by heart;
- is trained in heroic extra efforts;
- and knows why – taking these accounts to the next level – will be good for their wallet.
The results will dwarf anything else you can do.
* UK WW2 Poster