As insightful tools go, it’s difficult to beat sales analytics. High quality business analysis software is now available at an affordable cost to SMEs and larger businesses. So it is now possible for basic sales analytics to have a huge impact on businesses’ bottom lines.
Use sales analytics to run simple and straightforward analyses of customer profitability, pulling in customer, revenue and margin data, and — if appropriate — “cost to serve” data, eg. logistics costs and sales activity data. Such analyses are quick, straightforward, and provide ready insights into which levers to pull in order to increase overall profitability. This can be “real time” data.
- Who are your most profitable customers?
It’s not necessarily the customers who you think are the most profitable. You may find that the margins your sales people are accepting in order to retain your very largest customers are in fact pushing those customers down the profitability table.
How far down? That depends on the business. But we wouldn’t be surprised to learn that your top five customers are less profitable than your next five largest customers. Or that those ranked 11th to 20th are more profitable than those ranked 1st to 10th.
Not in terms of aggregate absolute profit earned necessarily (although that can happen). But certainly in terms of percentage margin, especially if cost-to-serve factors and cost to acquire are taken into account.
- Who are your least profitable customers?
Again, these aren’t necessarily who you might think. Cost-to-serve often plays a part here. So, rather than necessarily focusing on negotiated margins, look for concessions made on packaging or shipping charges, or special deals in terms of delivery frequency.
From a cost-to-serve perspective, take a close look at what you’re selling, as opposed to who you’re selling it to. If you’re maintaining entire product lines just for one or two customers, then alarm bells should be ringing.
- How can you take corrective action?
In terms of boosting the bottom line, it is hard to simply swap less profitable customers for more profitable ones. But in practice it’s simply necessary to know why some customers are less profitable than others — and then corrective action can be taken.
Are incentives to the sales staff encouraging too much discounting? Are larger customers imposing overly-onerous conditions? Is a process of product rationalization called for? By looking at those characteristics that are shared by your more profitable customers, it’s possible to shape offers so as to be more attractive to that type of customer. Then focus on capturing more-profitable customers instead of less-profitable customers.
It’s not an overnight process, but it’s certainly a journey where sure-and-steady progress is very possible. Despite which, all too few businesses engage with sales analytics in order to find the starting point necessary to embark on the journey. As low-hanging fruit go, making improvements to customer profitability ranks among the most straightforward means possible of boosting the bottom line.
So start the journey today.