Not All HVACR Customers Are Created Equally
How the importance of conducting a cost-to-serve analysis can affect the way you do business
As distributors are under pressure to increase profitability in the face of industry consolidation, organizations are analyzing their businesses from top to bottom to identify new revenue streams and secure existing ones.
By identifying their most valuable clients, distributors can focus on enhancing the service provided to these accounts in order to increase loyalty and protect revenue. By developing a business’s understanding of which customers burden productivity or cost the most to serve, organizations can analyze why these accounts aren’t as profitable and adjust their sales strategies accordingly. This also enables distributors to provide a degree of personalization to customers, which can increase company profits by up to 20 percent.
To identify the value and productivity burden that individual customers have on a business, distributors need to conduct a cost-to-serve analysis, which takes into consideration both the income and overhead processing costs associated with each client account. This is essential as not all customers maintain the same business processes as when they were first defined. Exceptions and error handling involved with managing customer’s business may ultimately impact productivity and profitability.
Conducting a comprehensive cost-to-serve analysis requires distributors to collect and collate data from across the supply chain. This not only enables companies to determine their most and least valuable customers but also create comprehensive customer profiles and pursue more efficient processes. Additionally, with insight into who, what, when, and where customers purchase products, distributors can identify their most profitable and costly sales processes and allocate resources accordingly to improve profitability. However, this is easier said than done, as only 15 percent of B2B companies feel they have a complete view of customer activity.
In order to obtain insight on their customers’ spending habits, distributors need to utilize technology that can gather empirical data from the touchpoints clients use to interact with companies. The channels used by customers to conduct transactions vary slightly from distributor to distributor, but in the digital age, these are increasingly occurring via e-commerce. U.S. B2B e-commerce is expected to hit $1.2 trillion by 2021, and email remains the preferred customer purchase order method with more than 74 percent of orders being placed via this channel.
Although the majority of distribution sales are placed through email, it can be a challenge to interpret and analyze the data contained within emails into meaningful insight due to its complexity. However, conducting a comprehensive cost-to-serve analysis requires companies to maximize all the client data at their disposal, both structured and unstructured. Looking deeper into structured data means evaluating transaction management beyond the sale. Looking at the effort to process customer transactions and order handling is just as critical to generating growth as compelling customers to place their orders with the company in the first place.
STRUCTURED DATA VERSUS UNSTRUCTURED DATA
Unstructured data is unorganized and difficult to analyze. Structured data, on the other hand, is information that can be easily collated and analyzed, such as the number of orders per month for a particular product. As unstructured and structured data contain valuable customer insights, to create a complete cost-to-serve calculation, distributors need the ability to collect and analyze both types of data in tandem.
Due to its complexity, many businesses choose to ignore unstructured data even though it provides a huge repository of valuable client information. Instead, distributors need to adopt technology to deliver empirical business intelligence from unstructured data, such as that found in emails, and use it to calculate the profitability and impact to productivity of individual customer accounts.
As sales orders completed through email or an e-commerce platform can be automated, they require fewer resources and consequently less money to operate than those completed through sales reps. Additionally, digitized sales channels, like EDI or e-commerce sites, may bring unforeseen declines to expected productivity due to the handling of exceptions to business rules after the technology has been implemented. Through identifying customers whose value is eroded by using less-cost effective sales channels, distributors can provide incentives to encourage those clients to use more profitable processes.
A COMPLETE COST-TO-SERVE ANALYSIS
By analyzing both types of data collected through customer touchpoints in the supply chain, organizations can reveal the costs associated with fulfilling and servicing individual client accounts. This figure can then be subtracted from the value of sales the customer brings in to produce their cost-to-serve calculation. This enables distributors to identify their most valuable customer accounts and those that burden productivity with inefficient processing tasks to align sales strategies accordingly.
As well as enabling distributors to tailor their sales strategies to specific clients to maximize their profit margins, with knowledge of customer purchasing preferences, distributors can refine certain processes for increased efficiency and reduced costs, which ultimately improves profitability.
Through ongoing digital transformation, distributors can adopt technology that collects and analyzes both unstructured and structured data. This can deliver meaningful insights that allow organizations to conduct a comprehensive cost-to-serve analysis on individual customers. This enables organizations to identify the value of each client account to the business so they tailor their sales strategies accordingly to boost profitability. This is essential as industry consolidation continues to squeeze margins across the board.
Publication date: 08/13/18