Pricing

Locating Unprofitable Customers in Your Data and Travel Hockey

By Tom Cowen
April 8, 2014

As the father of a 10 year old House League hockey player, I am intrigued by the alphabet soup that has been created to classify players as young as 6 on the Travel Hockey scene. Entering our 4 rink hockey facility early Sunday morning, I was immediately hit with a schedule screen that included: House league, B, A, AA minor and AAA major games.  Following a stiff cup of rink coffee, my mind drifted back to my iPad and work.  In my sick mind I wondered, what were the similarities and differences between how a youth hockey player and a large corporate customer are classified?

Over the next 10 minutes I walked by the glass window in front of each rink and observed the difference between all the different levels.  It was clear there was a difference, but what was it?  The AAA Major players were clearly faster, stronger, more skilled, worked as a team and as Malcolm Gladwell suggested, probably born in January or February.  So, how do we classify our best and worst customers?  We know off hand that our best customers buy more and hopefully produce more profits for our company, but we must look deeper, here are our suggestions:

Classify your customers – Our first step at Vendavo is to classify your customers by revenue, volume and profits.  You will be surprised, your A class revenue customers are not always your A class profit customers.  Look at a whale chart to understand how concentrated revenues and profits are.  Next answer this question: what would your profits go to if you lost all your A class customers or all your E class customers.  You will quickly understand what’s at stake in your business.

Define metrics – Next, discuss internally what defines a great customer and what defines a crappy customer.  Depending on your industry, the great customers generally buy a lot, buy many products, buy new products, don’t ask for exorbitant discounts, place only large orders that don’t require rush shipping and engineer their own solutions.  So, how do we next capture those characteristics?  Here are a few great measures to consider: New Product Adoption, #  of SKUs purchased, % of orders rush shipped, average order size.  Don’t just look at profitability and price, but understand what drives a great customer relationship.

Top 10 analysis – Next, we recommend that you start with your Top 10 customers based on the metrics above and others in a dashboard.  We have performed this analysis on some of our projects and have been amazed at the difference within just the Top 10, there do exist some really great customers who are partners and others who are extremely tough to deal with.

Set a strategic plan – Next, create a strategic plan for your largest customers.  How will you build on the great relationship and continue to grow your business?  Next focus on your poorer customers, what are the service levels identified earlier that we can bring into line with our best customers, what is a 2 year plan to get prices and discounts in line with the level of service?

Dig Deeper – Finally, look further down your list.  Look first at your E class customers and see who exhibits the worst scores on the metrics defined above.  Evaluate what you can do to lose them or change them quickly.

  • customer classification , customer insight , customers , leverage data , Low Margin by Customer , unprofitable customers , Vendavo Profit Advisor

    Tom Cowen

    Tom Cowen is an industry veteran with 20 years of experience in Sales, Financial and Price Management at High Tech and Media Companies. Tom spent the first five years of his career at Hearst Magazines where he was Business Planning Manager for the Corporate Marketing and Sales team. He served the previous 13 years of his career as a Global and Enterprise Sales Manager at market-leading technology companies: Oracle, EMC and BEA Systems. As a Global Sales Executive, Tom has managed the Sales and Negotiation Process effectively with top tier customers:  General Electric, Goldman Sachs, Merck and McGraw-Hill.