The 2020 Mid-Year Economic Update_long

Tip: Add Reasonable Premiums to Increase Small Customer Profitability

Companies must avoid underpricing accounts with little or no potential growth rates.

Make sure small accounts are priced at reasonable premiums to offset their higher costs to serve, as 30 percent of small customers in any given year pay below-market price for their basket of products, which reduces overall margins by 3.5 percent to 5.5 percent, says David Bauders in Making Money with Small Customers: Defeating the Profit Drag.

Bauders says small customers tend to receive lower prices because their accounts have smaller dollar impacts, their newness to the ERP results in on-the-fly pricing, their size limits how much financial tracking gets done and their cumulative drag on financial performance is rarely understood. Pricing them reasonably keeps them from being a constant drag on profit.

"The key to happiness with small customers is complex yet simple," Bauders says. "Refrain from exerting scarce organizational resources on small accounts that have little or no potential growth rates. Point them to methods of service (inside sales, e-commerce, etc.) and vendors that are appropriate to the size of the opportunity. Incent the sales team to reduce churn rates for mid-size accounts and to identify and deliver profitable small accounts.

Read more about turning small customers into profitable sources of growing vitality in Making Money with Small Customers: Defeating the Profit Drag.

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