The path to profitability begins with ensuring that salespeople understand where the company does and doesn't make money, according to Steve Deist in 3 Margin Levers of Customer Profitability Analytics. Customer profitability analytics are an effective way to do this – and boost gross and net margins at the same time.
Deist, a partner with Indian River Consulting Group, says salespeople need data to show them which customers are profitable and which aren't.
"When inside sales reps learn that some of their high-maintenance 'star' customers are actually big-time losers, they think differently the next time one of those customers asks for a discount," Deist says. "Replacing anecdote with data can have a profound impact."
Customer profitability data, beyond providing visibility, can be used to drive margin improvements in three broad categories: account profit improvement plans (PIPs); pricing optimization; and services and channel alignment.
Of these three levers, PIPs are the most tactical and offer the lowest risk. Similar to growth targeting, PIPs aim to grow bottom-line contribution dollars rather than top-line revenue dollars. The sales rep reviews the profitability of assigned accounts, identifies a small number of customers that might be good candidates for improvement, sets improvement goals for each and develops action plans to reach the goals.
Read more about becoming profitable in 3 Margin Levers of Customer Profitability Analytics, and look for Part 3 of this series, which will focus on how to use customer profitability analysis to improve your company’s market access, in the March 10 issue.