Bruce Merrifield, President — Merrifield Consulting
•QPM •Quantum Profit Management (QPM) •business math for distribution •cost-to-serve math •LIPA •line-item profit analytics in distribution
Wednesday, February 14, 2018—Increase Profits: Rank Customers by Niche and Net Profit and Act Accordingly
If you sell price sensitive commodities, you might consider reinventing your service value by customer niche. Here's how to do it in eight steps:
1. For every customer, calculate this profit equation and create a ranking: Gross Margin Dollars – Cost To Serve Dollars = Profit Dollars
2. Sort the top 100+ customers into niches and lump the smallest 50% or so into a miscellaneous small segment.
3. Rank the niches by profit to get a bar chart ranking (there's an example in this video).
4. Visit five or so 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 need.
5. Re-tune the SKU mix and fill rates for each target niche. Not every customer niche buys the same basket of products.
6. Be sure to have a team-selling solution model for large accounts that are seeking (or open to having) a supply chain partner.
7. Most small accounts will be losers despite high gross margin percentages. Assign them to a new, lower cost service model division to become profitable. Some accounts will switch their small gross margin dollar orders to competitors, but while competitors get busier and make less profit, reinvest your fulfillment slack back into steps 1–6.
8. Improve your innovation metrics such as making 100% of customers profitable, increasing target niche sales by 20%–100% and profits by 1x–5x, or increasing gross margin dollars per full time equivalent employee. (Watch your profits/FTEE soar. Why? How? Stay tuned for my next blog post!)
In this video you'll see an actual case study in which management was shocked to discover that the lowest gross margin percentage niche was the most profitable and the highest gross margin percentage customer niche–comprised of 40% of all the smallest customers–was a big loser.
This company, even with just okay execution of these eight steps, doubled profits in their most profitable niche, halved losses in losing niches, and tripled profits overall in just twelve months. This success came with only 20% of branch managers and sales reps becoming fluent in cost to serve math and motivated enough to pursue new results and metrics.
How do you get your people educated on cost to serve math?
Attend the Advanced Profit Innovation Conference (visit www.APICConference.com) on April 20th and 21st in Phoenix, Arizona. See you there!
Go to Waypoint Analytics (visit www.WayPointAnalytics.net) for a demo of their subscription web service and cost to serve math.
For more information about Bruce Merrifield, visit: www.merrifieldact2.com
The 3rd of 3 lists defining the markers of Distribution companies outpacing their peers.
Bruce Merrifield and Randy MacLean discuss the handful of key customers in your business, and how to keep them happy and loyal.
Randy MacLean explains the differences in business intelligence systems, and how to know what you're getting with each kind.
See how implementing LIPA can give you the bandwidth to be more accommodating to your customers with analytics-based service excellence
Randy MacLean and Bruce Merrifield of WayPoint Analytics discuss different levels of cost analysis, and why deeper analytics can bring much greater benefits.
Companies are developing more and more sophisticated approaches to sales compensation and here Bruce Merrifield and Randy MacLean examine the trends.
Waypoint Analytics uses line item profit analytics to dig deep into the numbers, and Waypoint users learn both bad news and good news about their customers.
Managing Product Line Profits shows how operations can have a significant impact on net profit and examines Peak Internal Profit, accumulated profit and more
Many naturally occurring, high gross margin percentage accounts and high gross margin percentage SKUs are operating profit losers.
A discussion of the benefits of segmentation and how this approach can help distributors achieve far greater levels of profitability.
Top companies like Amazon can leverage big data to predict consumer buying habits. Bruce Merrifield discusses how you can do this too!
Most distributors have naturally occurring, high gross margin percentage accounts and high gross margin percentage (small dollar pick) SKUs.
Continuance of the Enterprise Account Selling Model video series. Refers to a preceding video. Drawn from Bruce's presentation at APIC on March 1, 2016.
A continuation of the discussion between Bruce Merrifield and Randy MacLean over Bruce's Enterprise Account Selling Model (part 2).
Bruce Merrifield and Randy MacLean discuss Bruce's Enterprise Account Selling Model, as presented at APIC on March 1, 2016.
Using the negotiation process to achieve CTS savings, allowing you to offer your customers lower prices while leaving the table with a larger profit.
This video by Bruce Merrifield and Randy MacLean describes why you can't rely solely on gross margin to determine profitability.
An in-depth look at some historical limitations to sales compensation, and why those factors no longer apply with the availability of LIPA.
A fixation on gross margin – without looking at cost-to-serve (CTS) – has blinded countless distributors and limited their ability to achieve profitability.
See why your most profitable 200+ items are typically popular commodities with lots of picks for lots of customers with a high average sales dollar per pick.
Learn how this distributor was able to massively ramp up its profitability even as it lost many of its customers.
Learn why distributors can't simply rely on gross margin when determining whether a sale will add to the bottom line.
Randy MacLean talks about the emergence of a new sales strategy.
A discussion on how little extras can sometimes add up to a lot of infrastructure cost in wholesale distribution companies.
Learn how to boost your company innovation IQ by adopting the Anti-Nitpick Rule and the Wheel of Learning Tool.
Randy MacLean discusses key profitability metrics for QPM.
A discussion of the perils of a cookie cutter approach when it comes to sales and service in the wholesale distribution industry.
Bruce Merrifield of WayPoint Analytics teaches the importance of customer segmentation and the insights it can offer your distribution company.
Randy MacLean introduces the core principles of QPM and illustrates how it's the most effective way to run a business.
Have you had trouble conveying the importance of CTS to your team? Learn how this course provides an affordable and convenient educational solution.
Bruce Merrifield and Randy MacLean discuss profit strategies for wholesale distributors that will raise their cost-to-serve and profits.
Webinar: Quantum Sales Compensation Plan Part 2
Webinar: Quantum Sales Compensation: Designing Your Plan
Webinar: Quantum Sales Compensation for the Wholesale Distribution Industry: Launching Your Plan