Best, customer-profitability analytics provide many insights for distributors. A common opportunity is an accumulated sea of small, unprofitable accounts: Minnows! Typical group stats: 50% of all accounts that yield only 5% of the gross profit dollars on 18 – 30% of all transactions. Their cost-to-serve expense dollars greatly exceed their margin dollars for a big, hidden loss.
Closer examination of Minnows reveals that: 90%+ of them are self-employed entities that have not grown for years (and won’t in the future!). They visit at length with your service crew and are steady, loyal customers. They like your wholesale services and prices for their retail-sized orders. Their cumulative busy-ness is a distraction from doing a better job for super-profitable (potential) customers that pay for these losers: an “opportunity cost”!
Put them into a separate division with a new service model that will make them net-profitable. This will require:
- Buying out minnows assigned to your best reps so that the reps can (with account cracking team help) focus on targets accounts.
- Identifying 5 of the biggest, losing minnows per branch as case studies from which to learn to then experiment with new selling models.
- And, handling a wave of data-free opinions for why you can’t risk losing one minnow.
Examples: all customers are good. These are good people who are loyal friends. They don’t have space to store bigger orders. They will all leave. Our costs are fixed; any lost margin dollar will hit profits. We can’t let competitors have one new account (even losers?). Etc.
Management Team Discussion (education) Topics:
- Carefully examine five, worst-case, losing minnows at each branch. If they defected to competitors due to your new, profitable terms, what’s the quantified impact? Wouldn’t new, operational-slack flow to remaining customers for better service. As in pruning a bush, wouldn’t root energy (people slack) flow to remaining (ideally targeted, best) customers who would grow better?
- Let honchos pick 1 to 3 minnow pals to be exempted from the new terms to: avoid embarrassment with their friends and resistance to the entire program.
- Go slow. Solve the worst 5 minnows, then the next, worst slice. Get experience and confidence to proceed ever bigger.
- And, don’t get a better web-selling site to win more random, minnow customers.
If you are bleeding from a thousand cuts, how can you have the profits and slack to digitally innovate for your best customers?