Strategic Insights
16
DOMINATE
CORE-CUSTOMER, PROFIT POOLS
Do you think your company is better than your bottom
line suggests? Your right, because you intuitively know that:
1.
Hiding within your financial numbers, there
are very profitable customers and products that pay for the unprofitable
customers and items.
2.
The profitable customers and items are
inter-twined; they make each other possible.
3.
The cash-flow from this “pool” of customers
and items is big. It covers all of the losers with a bit left over for financial
profits.
4.
Your share of the possible net-profits from
your core pool of customers is un-measured, un-managed and far short of what it
could be.
5. While
financial GAAP reporting is necessary, it biases everyone to pursue sales
volume whether the gains are: profitable or not and to core pools or not.
6. If profits
are weak and economic headwinds are unrelenting, trying harder isn’t going to
help?
Is there a different perspective and path to greater profitable
growth? YES!
HOW
TO CAPTURE MAXIMUM SHARE OF YOUR CORE PROFIT POOLS
A “profit pool” for a distributor is the total potential
of the intersection of your most profitable customers (within a specific
customer niche) buying your most profitable items. Your best customer niches will
emerge by assigning each of your top 20+ most profitable customers into “what-do-they-do”
descriptive categories. You are looking for customers who buy a common array of
items and enveloping services. Each niche can also be sub-divided into size
levels that receive different bundles of services, prices and terms. The lower boundary for outside sales coverage –for
example- is around $4800 in margin per year.
For each niche, run a most-popular-&-net-profitable,
item ranking report.
Determine approximately what the one-stop assortment of stocking SKUs is for
the niche to then:
a.
Tune fill-rates for the most popular/profitable
items higher
b.
Identify most unprofitable items and invent
alternate ways to sell them to reduce hidden costs for both seller and buyer.
c.
Create a report for each customer of the
best items not being bought to pursue.
Although one-stop-shop fill-rates are the foundational
element of a distributor’s “service value equation”, what are the rest of the
equation’s metrics? Interviews with 3 or more of the best, most progressive and
friendly customers within a niche will help to refine the service equation.
After defining the equation, determine internal service
metrics that all employees can improve. For the best customers in a target
niche also:
1.
Provide a perfect service guarantee.
2.
Provide a hot line to a service manager for
special (emergency) service needs.
3.
Do a management-led, buy-sell process
improvement audit followed by a recommendation report and installment services
for free or some subsidized rate.
4.
Ask about all of the common items the
customer is not buying. Better service from fewer, consolidated suppliers lowers
a customer’s “total buying costs” and improves their “up-time economics”.
5.
Insure that all employees know top accounts
by heart and are able to say “yes” to whatever unusual service needs may arise.
After reinventing service value for the 3-5 best,
friendliest, core-pool customers, roll out the new service value proposition to
the rest of the pool.
WHAT
ARE THE POTENTIAL UPSIDE RESULTS?
A distributor can typically: double existing sales and quadruple net-profits within the
niche. And, much greater sales will turn a bigger, fill-rate-service, inventory
investment much better than that of unfocused competitors can do. The improved
inventory economics will be an invisible, service-value barrier that allows
on-going niche domination. Shoot for 50-80% of the total, net-profits from
the pool.
WHY
HAVEN’T MORE DISTRIBUTORS SWITCHED TO BEST-PROFIT-POOL MANAGEMENT?
From ’48 to ’07, we grew up prospering in a country and
industry where everyone used financial-management marketing principles by
default. Who knew much about hidden
net-profit cross-subsidies? Why not stick with what has worked and we know well?
We have been distracted by pursuing volume with too many product promotions,
from too many suppliers, to too many different types and sizes of customers
with one standard service model.
A global debt-bubble extended our prosperity from ’82
to ’07. It’s over; we have to change. Volume is vanity, profit is sanity and
free-cash-flow, profit pools are heaven. Technology now allows distributors - who
understand “profit-pool management” - to subscribe quickly and affordably to a net-profit-management,
turnkey, web-service system.
How easy, affordable and profitable is it to pursue this new paradigm path? Find out by requesting a management team, go-to-meeting demo of Waypoint Analytics' net-profit-management, web service. Contact me for details.
Bruce Merrifield
