16. New Customer-Profitability Power Laws

“The 20/80 principle” roughly applies to most distributors’ largest customers and their respective sales.

It’s called the Pareto Principle, and it’s a “power law” generalization from Pareto’s 1896 discovery that 20% of the Italian population owned 80% of the land.

Customers and their respective profits are far more skewed than 20/80, actually. Instead, distributor / customer-profit analytics reveals these power-laws:

  1. Your top 5% customers provide 90- 100% of accumulating profits.
  2. Your top 10% yield about 120% (the 6-10th percentiles add 20%+ to the cumulative profit total)
  3. Your top 20% crest at a Peak Internal Profit (PIP) of about 140% of operating profits
  4. The 21-40th percentiles are near breakeven
  5. The 41-97th percentiles are small-account, profit losers that eat 20% of the 140% “PIP”.
  6. The bottom 3% are large accounts with many small orders that cancel another 20% of the PIP. (They are also incurring huge, hidden, activity costs that can be transformed to profitability!)

Add Innovative-Growth-Potential Evaluations

Look at the past, five-year-growth trends for your top 10 most profitable accounts. Some may be trending – down, flat or up – for obvious reasons. Then, rate these accounts (1 to 5) for openness and progressiveness.

Growth and Progressiveness ratings lead to Power Law #7:  3-5% of your most-innovative accounts will generate 80% of all of the new, profit-growth in your marketplace. Can you partner with these “Gazelles”? Shouldn’t you invest more team, value-creation efforts into Gazelles than unchanging, faders?  I’ll show you how to do this at the upcoming APIC! (see below)

Some Other Big Questions

  • What new Sales/Service models are needed for Enterprise, Standard-Selling and Small accounts to better allocate service costs to profit potential?
  • What Next-Level Solutions can an Enterprise-Account team provide to these three types of big accounts: profitable; profitable/progressives; and super losers?
  • What new type of organizing process should you use?
  • Why does the –“Rep will do it all” – assumption fall short for Enterprise accounts?
  • What’s your new vision for the Sales Force to serve 3 or more service-cost models?
  • How will you get there with best reps staying happy all of the way?

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