Using a variety of measures to understand your customers’ true value, as I discussed, can unearth some surprises for distributors.
You may learn that the customer who spends the most also drains most of your resources – and consequently doesn’t look so great in terms of profit margin. Or that some of your biggest customers will probably never be convinced to try your breakthrough new product.
But once distributors have digested that often-surprising news, putting that information to work can be a game-changer in terms of productivity and profitability – and it can also trigger cultural changes among the sales team. This was a major theme at the recent MDM Pricing and Profitability Summit.
When technology makes customer metrics more readily available, that can lead to changes in how distributors sell, how they manage customers and even in how operations and sales work together. It may even mean a change in long-term goals.
Because detailed data about each customer’s purchasing patterns and support requirements means sales decisions no longer need to be based on whether a sales rep likes the customer and has played golf with him for years.
Rather, the determining factor is whether that investment of an outside sales rep’s time will yield sales growth – or actually diminish margins. If the customer is going to continue buying the same amount of the same product, there is little likelihood of any real return on the sizeable investment of the outside sales rep’s time. And so, it makes more financial sense to turn that account over to inside sales or sales support.
To simplify things just a bit, the metrics can help you put customers into one of three categories. Those categories should guide your decisions about how to deploy your sales resources:
High-profit customers. These often need an outside sales rep, and they provide a return on that investment.
Lower-profit but reliable customers. Those in this category need little interaction and could be serviced by inside or support staff, or even ecommerce.
Not-profitable customers. It might be advantageous to let these customers go.
Of course, that kind of change involves more than a quick re-assignment memo.
Change is uncomfortable, so many companies will experience a lot of pushback, particularly when a sales rep has a longstanding relationship with a customer. But it’s harder to argue against the transition when the data backs up the changes.
To make the transition as smooth as possible, several speakers at the MDM conference suggested cultural changes that might be required to smooth the transition:
Change the compensation structure.
Using metrics to understand customer behavior and profitability may cause a bump or two in your operations. But once you clear those, you’ll likely find you’re using your sales team more efficiently and productively, and, as a result, enjoying greater profitability.
About the Author Robert Ruppert