One of the greatest challenges to profitability with small accounts is the inconsistency in pricing these types of customers receive. In any given year, 30 percent of small customers are paying below-market price for their basket of products, according to David Bauders, president of Strategic Pricing Associates, in Making Money with Small Customers: Defeating the Profit Drag.
It happens for several reasons, Bauders says. The small dollar amounts don't trigger "financial alarm bells" in the system and many get priced on the fly because they aren't already set up in the ERP system with standard pricing rules.
These facts aren't likely to change, so how can the drag on profitability be mitigated?
The first step, according to Bauders, is to establish clear and concise metrics around how small customers are being served. How much of your revenue is coming from these types of accounts? Do you have tools in place to guide your sales team and prevent underpricing?
Then determine which channels can most profitably be used to serve these customers. That may mean pointing them to online platforms or setting price tiers and payment terms based on the size of the order.
Small customers don't have to be a profit drag, but distributors have to be proactive about how they service small customers and aware of the impact these transactions really have on the company's bottom line.
Read more about how to serve small customers more profitably in Making Money with Small Customers: Defeating the Profit Drag.