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Randy MacLean, President — WayPoint Analytics

•market intelligence •distribution management best practices •sales practices •high-profit accounts •efficiency metrics •money-losing sales •business analytics •money-losing activities •distributor sales analytics •cost to serve analytics •customer profitability analysis •cost cutting •management techniques

Your most dangerous customer is a customer that is draining a large amount of your profits, consuming a lot of your resources, and generally harming your profitability in a big way.

Every company has a most dangerous customer or, heaven forbid, several most dangerous customers; and in the distribution industry, what these tend to be are very large customers who have a lot of small locations.

Small companies who come in and buy a little bit of whatever it is that we sell, and do it on such a basis that we cannot possibly cover the cost of serving a customer, has been a problem that we've been working on for some time. It's something we all recognize.

Unfortunately, though, quite a number of large accounts are also really collections of the small money-losing customers. You may have some national chain, or some multi-location or multi-truck customer who has a business model where they come in and buy lots of small quantities of product. You enter the order, prepare the order, pick pack and ship, bill the order for sales that don't have enough gross profit to cover the cost-to-serve.

The reason this has happened, if you think about it, is that we lost track of how we do pricing.

Back in the dark ages of distribution, somebody very smartly understood that if they had a customer who provided them with a very large order where a lot of product would come in on a single shipment, go out on a single invoice, on a single delivery, it would result in a much lower operating cost rate. There would be a smaller proportion of cost for delivering the sale, and a smaller margin would be workable, viable and profitable. Unfortunately, since that day to this day, pricing sophistication is gone more to big customer = low-price.

Audio file: MostDangerous.mp3