www.quantumprofitmanagement.com Quantum Profit Management
Prioritizing Your Customers

Bruce Merrifield, President — Merrifield Consulting

•sales practices •profit strategy •Wholesale Distribution Industry •new opportunities for distribution industry •sales management •sales management styles in distribution •distribution industry sales management •LIPA •line-item profit analytics in distribution

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In this video interview, Randy MacLean and Bruce Merrifield discuss the perils of a cookie cutter approach when it comes to sales and service. This discussion specifically addresses the limiting belief that customers should be treated equally.

"The great sports writer Damon Runyon once famously said that the race doesn't always go to the fastest, fittest, or strongest horse, but that's how you ought to bet," Bruce said. "You have a limited number of resources so when it comes to spending your company's time and resources, who are you going to bet on?"

"If you look at customer profitability and ranking reports, you're going to realize that a small percent of customers are giving a huge amount of peak internal profits," Bruce continued. "You might also notice that half of your customers are small, show no signs of growth or innovation, and are needy. These small accounts tend to have a much higher demand for service than their margin dollars justify."

"As a fulfillment business, we tend to react to the phone," Bruce said. "Usually that call comes from a smaller customer who isn't sure what he needs or just wants to talk. He might order 4 items, but he'll send 3 of them back. Basically it's a guy who eats up a lot of time and creates a lot of paperwork."

"Meanwhile, it might turn out that our number 1 net profit customer is stuck on hold or has an issue that we can't address because we're so busy taking care of one more order for hundreds of smaller customers," Bruce said.

Obviously your best customers shouldn't have to rely on the same support network as your small, barely profitable (or unprofitable) customers. After all, these two groups of customers clearly aren't equal. However, getting your team to understand and respect these priorities can be difficult.

"The average person wants to just take care of the next thing in line, treat everybody the same, and go at the same speed," Bruce explained. "Everybody gets one vote. However, in business 1 profit dollar is one vote so one customer will have 10,000 votes while another customer has negative 200 votes."

"You need to instill a culture where everybody from the managers to the warehouse guy understand which customers are the priority and understand that it's okay to drop everything to help them," Bruce said.

"To give you some idea of what that might look like, I bought a failing company so I could do a turnaround," Bruce said. "The first thing I did was a customer profitability ranking report. Out of the top 10 customers, I noticed that 5 were in the same niche so, without needing to go further, I determined that this was historically their most profitable niche."

"I then met with these customers and asked them a number of questions to figure out what they liked or didn't like about our service," Bruce continued. "I used this to put together a set of metrics and created a chart which I put up on the warehouse wall so everybody would understand that these guys were the priority, what the service goals for these customers were, and that they could drop everything to help these customers."

The key idea here is that your employees should be encouraged and empowered to provide the highest levels of service to your best customers at the expense of your less profitable accounts. If a delivery truck is stuck in traffic with 3 stops left, the most important customer should get his order and the others can wait until tomorrow.

Of course, to be able to recognize those priorities you first need to have profitability information. If you're just guessing or using gross margin, you run the risk of doing more harm than good, which is why you need a system like WayPoint Analytics to identify the winners and losers.

For more information about Bruce Merrifield, visit: www.merrifieldact2.com

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