Customer-profitability analytics provide many insights for distributors. A common opportunity is an accumulated sea of small, unprofitable accounts: Minnows!
Typical minnow stats: 50% of all accounts that yield only 5% of the gross profit dollars on 18% to 30% of all transactions. Their cost-to-serve expense dollars greatly exceed their margin dollars for a big and hidden loss.
Closer examination of Minnows reveals that more than 90% of them are self-employed entities that have not grown for years (and won’t in the future). But 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.
This group of customers cause distraction from doing a better job for super-profitable (potential) customers that pay for these minnows; an “opportunity cost!”
Photo courtesy pakorn slowmotiongli, iStock / Getty Images Plus
What’s the solution?
Put minnows in 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 five of the biggest losing minnows per branch and use them as case studies from which to learn and experiment with new selling models; and
- Handling a wave of data-free opinions for why you can’t risk losing one minnow.
Flawed beliefs
Examples of false beliefs are:
1. All customers are good. They are good people who are loyal friends. They don’t have space to store bigger orders;
Our costs are fixed; any lost margin dollar will hit profits; and
We can’t let competitors have one new account (even small accounts).
Educational management team discussion 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 one-to-three minnow pals to be exempted from the new terms to avoid embarrassment with their friends and resistance to the entire program.
- Go slow. Start by solving the worst five minnows. Get experience and confidence to proceed ever bigger.
- 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?
Longtime industry consultant Bruce Merrifield is an expert on high-performance service management and is one of the most successful turnaround advisors for wholesale-distribution companies and channels. Each month Bruce will answer your distribution-related business questions here.
