 
| |||
Your Accounts: Spoil the Top, Cultivate the Middle and Weed Out the BottomFORM, June 1991 Customer segmentation: The ongoing process of ranking clients according to profitability and providing services commensurate to that ranking. BY DIANE SAUNDERS More is not always better. Providing less or even no service to certain clients may seem drastic in this age of emphasis on high service levels, but it could, in fact, be one of the best strategies you ever implemented. When you segment and evaluate your accounts, you'll discover the source of major profits, and find out which customers may not be worth extra time and effort-time you could be spending on more profitable accounts. Distributors large and small say it's important to segment accounts- whether formal or not. They are taking a hard look at the profit potential of both existing and prospective accounts. The management team at Tully-Wihr Company, a large distributor in Union City, Calif., regularly looks at the profits generated by each of its accounts. A printout shows expenses, gross margin dollars and gross margin percentages. Company President Charlie Miller, CFC, says that based on the evaluation, service to smaller, less profitable accounts is reduced. Some accounts may be turned over to telemarketing. If an account has potential, the team finds ways to increase its profit level. John W. Pour, president of M&J Graphics, a small Oak Forest, Ill., distributorship, is his firm's only sales rep. He has a part-time sales service specialist who helps him with what he calls a "relatively simple segmenting program." The sales service specialist maintains a list showing a 3-year history of each client's sales volume, which is further broken down by product. "I can see exactly where I have lost and where I have gained with each client," says Pour. James Hafner, president of Forms Rite Business Forms, in Amherst, N.Y., categorizes his clients as major, medium or small four times a year. He combines and analyzes profit and volume to determine which sales reps to assign to which accounts, and he says he also gets a rough idea of the profit and volume that each sales rep should be generating. Why Segment? "We should establish closer relationships with customers," says McMahon, "and we must offer new products and additional services. But, we can't offer these services to everyone, nor can we get closer to everyone. Instead, we must discriminate." How to Segment Your "A" accounts are the 20 percent of accounts that give you 80 percent of your volume. "B"s designate 20 percent of the remaining 80 percent of volume, and so on through to the "E" level accounts. When you rate the profitability of your accounts and segment them, you will probably find that some high-volume accounts are not contributing significantly to your bottom line. Very large accounts may bargain hard for special pricing and special services so they should be analyzed carefully. Before assigning service levels, examine accounts and determine if any deserve special attention or a higher care level. A written plan can lead to consistency in how your company handles its clients instead of leaving actions up to each employee, says McMahon. A plan will stress to your employees just how important your "A" customers are and how much service those customers should receive. The plan also will let everyone in your company know how much service "D" customers should receive. Your "D" accounts should receive basic services. They should be handled courteously and promptly but usually should not receive the extra attention given A, B or C customers. Sometimes a "D" customer will require extra services, such as a sales call or forms design, which may be offered at an additional charge. When "A" customers call, they should be treated as if they are your only customers. This group might receive some services free, such as delivery or warehousing. The time, capital and people you conserve by customer segmentation should be reinvested into this "A" group. Every person in your organization should know who the "A" customers are. If this group is too large for your company to handle comfortably, you may want to divide it into the A-1s and A-2s. The "A" customers can guide you in developing new products and services. They are the leaders in your market. They require new products first and appreciate new services the most. The "B" customers are one step below the "A" customers. When a "B" customer calls, the office jumps, but not as high as for the "A" customer. The "B" customer receives all of the basic services and most, but not all, the extra services. The "C" customers receive all the basic services that "D" customers receive, plus a few extra services, but not as many as the "B" customers. At Forms Plus, "D" customers represent $400,000 in sales. "We don't like to give up $400,00, so we don't give them up, but we don't serve them very well," says McMahon. Half of the company's "D" accounts are not assigned to a salesperson. When these customers need a sales rep, McMahon temporarily assigns one. Darrel D. Hansen, CFC, president of Centro Business Forms in Bend, Ore., and NBFA's distributor vice president, uses a computer to track his firm's largest accounts. He revises the list every quarter, reviewing the top 50 accounts for gross dollars and gross profit. The top 50 clients account for 70 to 77 percent of Centro's business. "We segment because we know that high service accounts should be providing us with greater profits," says Hansen. His evaluations provide monthly and quarterly figures. Each quarter, company sales managers review accounts with sales reps. They discuss problems such as growth or decline of sales volume to discover what happened, why and what can be done. Assign services to each account level. Consider the cost of these services versus the profitability of the accounts. Service costs can be developed by working with your employees to establish average times spent to provide a service. For example, sales service specialists can track the time it takes to handle an order with errors in the specifications. Projecting Potential Volume "Look around," says Pour, who recently visited a prospect with a laser printer on every desk. "I could hardly keep from drooling at the opportunities." Some accounts may not seem to have quite as much potential, but may lead to opportunities, he says. Recently Pour supplied business cards, stationery and envelopes for a new business-a small order-but the client has given Pour four referrals with a lot of potential business. And it sometimes pays to have a "name" account or two for promotional reasons even if they are not highly profitable. Miller says it's difficult to turn down any new business. "Most distributors are so hungry for new business that we can't afford the luxury of selecting only certain accounts," he says. However, if he thinks his company cannot compete effectively on a certain product, he tells the client or prospect and may recommend another distributor. Although Hansen's company cannot pick and choose accounts, he looks for minimum dollar amounts of sales from prospects, tries to develop accounts whose buyers share his values and analyzes prospect needs to determine if his company "has the horsepower" to meet those needs. To determine a prospect's potential sales volume, ask:
Miller looks at each account and devises ways to make less profitable ones more profitable. "We take more control of pricing-usually a function of individual sales reps-and we increase prices. There is a tendency for some people to undervalue their services," says Miller. When Hansen discovers he is receiving a minimum amount of business from current accounts with large potential, he wants to know why. He asks: What are we doing wrong? Do we need to change our offerings? Should we add other services? Should we be selling forms management to this account? What about promotional printing? If an account has no growth potential, Hansen turns the account over to telemarketing. The Hassle Factor When payment is the culprit, Richard Wahlberg, CFC, owner of Innovative Business Systems, a distributorship in Orland Park, Ill., tries to arrange payment of 1Ú2 down and the remainder in 30 days. "That way I'm only on the hook for the 30 days," he says. He may require payment in advance. "If a client does not agree to this, we part," he says. Dropping Customers Pour tries to keep communication open. "If the customer is having credit problems we talk about it," he says. He has developed payment plans for otherwise good customers and sometimes provides forms and services COD rather than drop the client. Or he may mark up the order and add rush charges. Pour once dropped a potentially large account, a division of a larger firm, on an inventory control program. "The company refused to order items when we advised them to," he says. "They constantly ran out and wanted forms in three days. We jumped through hoops and 120 days went by before we were paid. When it was time to reorder they told us our price was too high. We had enough." Diane Saunders is assistant managing editor of FORM magazine. How Do I Start? Basic Services
Extra Services
Account Profitability: A Manufacturer's Point of View
Then Weinzierl measured each customer on a list of those often needing extra explanation of order specs. Belknap contacted these customers and worked with them to improve their skills. Customers usually responded favorably. A review of problem customers showed how much extra time was spent on one of their orders. The cost of the time was added to every quote given to these customers. Accounts receivable were reviewed and late-paying customers defined. Weinzierl measured time, the number of phone calls and a factor for financial risk. He added the extra cost. He measured the use of 800 numbers and the additional customer service work. He measured quotations that turned into orders. If he found he provided many quotes and no order, he called the customer to find out why. "Review the cost of doing business with each customer," says Wienzierl. "Each must be profitable. Avoid spreading abnormal costs over your entire customer base." |
|||
|
|||