Calendar-year distributors: What’s your planning routine for 2020?
Is it forecasts, goal-setting and budgets? To beat last year by trying harder? Plus, what big new-competitive-advantage experiments will you be trying?
If you aren’t planning something a bit scary, then you are doing the same old stuff in new clothes to get fading results.
New Clothes Case Example
Two years ago, a new client spent big on a better website, boosted search-engine optimization, and had rotating “best-value” specials from “preferred” (bigger rebate) suppliers on the homepage.
The results? They doubled active accounts and increased total margin dollars by 5% on 25% more transactions. They hired more employees to fulfill the explosion of orders, and operational expenses increased faster than margin and rebate dollars to earn lower profits.
Lessons
- Distributors: You don’t have Amazon’s lowest-cost website, warehouse picking and deliveries, nor can you collect and monetize Prime buyer clickstreams in multiple ways.
- “More sales and margin dollars at a good margin percentage” ignores both order size and cost-per-order. Trading higher service-cost dollars for lower, margin-dollar orders does not get profitable with increasing volume. Volume is vanity, Profit is sanity!
- Most distributors already have accumulated a hidden, small-customer/order problem over the years. Distributors that invest in customer-profitability analytics typically find about 30-50% of the smallest customers generate 4-8% of total margin dollars on 18-25% of total transactions. Always for a net-profit loss.
- 95% of these unprofitable minnows are self-employed with zero to declining growth. They do love exchanging retail-sized orders for wholesale services and prices.
- This losing, minnow busyness has an “opportunity cost.” There is little time or profit to invest into better-serve value for most net-profitable customers and target accounts. Without net-profit analytics, every customer and margin dollar is good and too equally served.
2020 Breakthrough Idea
Do a simple customer net-profit ranking analysis, or check the best cloud service for distributors. Then, how will you segment customers and reserve them differently? Existing data-free beliefs such as “all customers and margin dollars are good”— die hard.
For a comprehensive roadmap on how to fix losing minnows, while winning more from best accounts, read my Core Renewal Roadmap, available by emailing me at bruce@merrifield.com.
This is the first of several “scary 2020 question” columns. Much more to come.
