17. Rank Customer-Niches by Net Profits and Act

Cost-to-Serve Math, Index, Line Item Profit Analytics

Do you sell price-sensitive commodities? If so, consider reinventing service-value by customer-niche with these eight steps:

  1. Calculate this Profit-Equation for every customer:

Gross Margin Dollars (less) Cost-To-Serve Dollars = Profit Dollars

  1. Rank all customers to then sort the top 100+ customers into ‘niches”. Lump the smallest 50% or so into a “Miscellaneous-Small” segment.
  2. Rank the niches by profits to get a bar chart ranking (see example in the video excerpt below).
  3. Visit 5+ of your best customers in each target niche to uncover additional service needs. Each customer-niche is apt to have one or more peculiar, but-common-to-the-niche, unmet needs.
  4. For starters, not every customer-niche buys the same basket of products. Re-tune the SKU mix and fill-rates for each target niche.
  5. Huge accounts seeking (or are open to having) a supply-chain partner will need a team-selling solution model.
  6. Most small accounts will be losers in spite of high Gross-Margin Percentages (GM%). Assign them to a new, lower-cost, service-model division to become profitable. Some accounts will switch their small GM-$ orders to competitors. While competitors get busier to make less profits, reinvest your fulfillment slack into doing steps 1-6.
  7. And, improve these “innovation metrics”:
    1. Make 100% of customers profitable
    2. Increase target niche sales by 20-100% and profits by 1-5x.
    3. Increase Gross Margin Dollars (GM-$s) per Full-Time Equivalent Employee (FTEE)
    4. And watch Profits/FTEE soar (Why? How? Stay tuned for my next blog post!)

Some of the Highlights from the Case Study in the Video Include:

Management’s shock to discover that:

  • The lowest Gross Margin Percentage (GM%) niche was the most profitable.
  • The highest GM% customer-niche -comprised of 40% of all the smallest customers – was a big loser.

With “okay” (meaning only 20% of branch managers and Sales Reps got CTS Math fluent and motivated enough to pursue new results and metrics) execution of the 8 Steps, in twelve months they doubled profits within the most profitable niche; halved losses in losing niches; and, tripled profits overall.

 

 

How then to solve the CTS Math Educational gap? Three solutions:

  1. Attend the “APIC” conference Feb. 29th/March 1st in Phoenix. (apicconference.com) See you there!
  2. Check out my new CTS Math course: the video clip is an excerpt from “Lesson #9” out of 49 total clips.
  3. Get a demo of Waypoint Analytics CTS Math web service (waypointanalytics.net)