44. Make Your Own Luck with Big Profit Swing Customers in Distribution

Do you know who your year-over-year big profit swing accounts are? Here are some steps you can take to find your big profit swing customers in distribution. You may be shocked, but make small bets on them in 2017, and you might just get lucky.

  1. Create a cost-to-serve model to compute customer net-profitability
  2. Have two full years of history
  3. For each account, subtract the profits (or losses) from two years ago from this past year
  4. Rank all customers in distribution by the profit difference from highest positive gain to biggest negative loss (see the easy, how-to answer at the end!)

Typical Case Revelations

A $50MM distributor just closed its fiscal 2016 year with sales up 6% and profits 10% over 2015. Profit margin improved from 3.5% to 3.8%. They beat local and channel/industry growth rates by a few points.

Good job, right?

But, there were some big customer profit swings, fumbles, defections, and gifts hiding in the financial totals. Some discoveries were:

  • Fifty-six accounts (1.6%) had net profit increases of $6,800 to $50,000. The group’s total gain was $700,000, or 37% of the operating profit.
  • The 43 accounts that were the most down (1.5%) had profit declines of $6,800 to $126,000. The group’s total loss was $794,000 or 41% of operating profit.
  • The two groups combined had a net-negative profit decline of $94,000.
  • Fortunately, all other accounts were up in year-over-year profits by 10%.

So What?

With overall numbers up, why should anyone care specifically why the accounts of these big profit swing customers in distribution were up or down? But, executives should be concerned that 3% of accounts could affect total profit by a combined 78%. Why not do some root-cause investigation for new insights?

Some of the questions this company wanted to answer were:

  1. What type of team selling might be focused on the top 3% net-profitable and unprofitable accounts in 2017, with the goals of reducing fumbles and defections to competitors and increasing takeaways?
  2. Of the 56 accounts that were up, 15 were new, unknown accounts. They were up big from a small, or even zero, previous-year base. So who were they? Were these house accounts that found the company? Found and nurtured by sales reps?
  3. Were there any gazelles that the team should try to partner with to lock in future growth?

How can you get these deep dive investigation tools quickly and affordably?  

Waypoint Analytics’ cloud service has the capabilities to answer these questions and much more. Email me for a demo and receive my annotated slides from my seminar: Line Item Profit Analytics.

Email me at bruce@merrifield.com to learn more.

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