Many times in business, distributors group things together to make it easier. All customers are lumped together and then strategies and tactics are aligned with them. Unfortunately, when it comes to grouping clients by financial category or size, the larger and most important part of the picture, velocity, many times is not taken into account. It is overlooked.
When it comes to separating customers into groups, the same applies. Customer direction and velocity are critical. Distributors must ask themselves, "Is this a small customer accelerating to $100,000, or is it a large customer failing to spend $100,000?"
To start, look at the customer's sales trends month over month and year over year. Analyze information such as client purchase gain/loss, frequency of purchase, and general account activity. Compare the individual customer results with the total overall business numbers and determine where each one falls. Don't forget to take into account seasonality, weather extremes, or special circumstances.
What do the customer's business mixes look like? Are they increasing in residential replacement, new construction, parts, condensers, or complete systems? Did they have one big job that skewed the results or have they been growing steadily? Distributors must know what their customers are selling so that they can look at their overall margins to determine profitability of a customer. If customers are cherry picking the supply house only on a low margin product the distributor needs to know.
On the other hand, if the customer's business is growing, but not with the distributor, then it is important to examine the territory sales manager's relationship with the account. If the problem is not identified and corrected immediately, it can be incredibly difficult to get the business back.
Most companies will spend their sales, marketing, and advertising budgets almost equally on all of their accounts. In net effect, what they are doing is spending less than 20 percent of their resources on the top 20 percent of their customers. This translates into 80 percent of their resources being spent on those accounts that are either declining or stagnant. In reality, they should spend 80 percent of their resources on growth accounts and 20 percent on stagnant and declining accounts.
Once distributors start spending time and money on those people who make them money, they'll see an outstanding ROI. Then, when distributors think about reinvesting 80 percent of their money on the accounts that have earned the right to spend it, they'll sleep a whole lot better at night. The customer will also feel better knowing they qualify to be in this special category.
Publication date: 10/09/2006