Bruce Merrifield, President — Merrifield Consulting
•competitive strategy •profit analytics •WayPoint Analytics •distribution management best practices •whale curves •management strategies •Wholesale Distribution Industry •customer profitability ranking report •new opportunities for distribution industry •business math for distribution •wholesale distribution basic math
Wednesday, August 16, 2017—What can be accomplished in just two years through using the whale curve to adjust your business practices? For one WayPoint client, the answer was a five-fold increase to its profits! In this video interview, Bruce Merrifield and Randy MacLean discuss how our client accomplished this tremendous feat and how you may be able to replicate the results in your own business.
To set the stage, a whale curve is a profit ranking report that visually resembles a whale's body. On the left side is the most profitable portion of your business and the line follows from the parts of the business where the company makes most of its profits all the way to the money-losing parts.
For this particular example, the video shows three lines that represent snapshots showing the original curve, the 12-month change, and the 24-month change.
"Originally the client had up to 3,000 active accounts," Bruce said. "If you look at the chart, you'll notice that 12 months in they lost some customers and then they lost even more customers after another 12 months... but their profits increased fivefold! How can you have fewer accounts yet make more money?"
"Part of it was figuring out an innovative solution for dealing with smaller customers," Bruce continued. "The client had a lot of little customers who might buy a few hundred dollars' worth of items in a year. The amount of time and infrastructure spent on these accounts was causing the company to lose money."
"The client made it their mission to have all of their accounts be profitable," Bruce said. "To do this, they created a division for small accounts with a different service cost model. They raised prices, required minimum orders, unbundled freight, and made other changes. Basically if a customer stayed, these terms would ensure that the client made money. Not everybody liked that, so the client lost some customers who weren't profitable anyway."
"Next, the client went to the top five accounts and asked if they could walk through the places to see what operations could be improved," Bruce said. "This included finding ways to make their relationship more efficient and friction-free. The client found some areas that could be improved which let them get more business or helped to lower the cost-to-serve while providing the same or better value."
"The client also paid a visit to the super-big losers and, armed with statistical data, were able to show them instances where there was a lot of buying activity for no real value," Bruce added. "Usually it was a case of buying too little at a time which meant that both sides spent a lot of extra time processing orders. Because these were big customers who had just been buying things wrong, many of these super-losers became super-winners."
It's important to remember that a relatively small number of accounts are responsible for your major gains and losses. By paying attention to and working with these accounts, you can greatly improve their profitability. Likewise, you'll always have some smaller accounts, which can't offer a lot of profitability but, if you find the right way to do business with them, you can ensure that they're always profitable.
The whale curve is an incredible tool for highlighting how your customers perform and can be used to effect real, meaningful, and profitable change in how your company does business. You've heard what it did for this client. What can it do for your business?
For more information about Bruce Merrifield, visit: www.merrifieldact2.com
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