Merrifield: Average distributor has no cost-to-serve model
Longtime industry consultant Bruce Merrifield told attendees of the May ASA Industrial Piping Division Open House Breakfast Forum that by definition, 80% of all sales territories are money losers.
In a wide-ranging hour-plus-long talk, Merrifield dispensed a plethora of advice to help companies improve on that front and stressed a key driver to greater profitability centers on a cost-to-serve-model — calculating the profitability of a customer account.
“The average distributor has no cost-to-serve model,” he said. “Without that you are missing half the equation. Get the missing half of the equation and focus on cost-to-serve dollars.”
Merrifield also asked attendees to take a good look at their customer lists and determine which ones are profitable and which ones are money losers. “Most people are obsessed and don’t want to lose even one account,” he said. “They don’t want to lose these minnows (smaller accounts).”
One attendee noted a further examination of his company’s accounts revealed its biggest customer also was its highest money-losing account. “Between the silos of the large accounts are a lot of weeds,” Merrifield said. “Those top 1 to 4% of accounts are your future.”
To view Supply House Times Editor Mike Miazga’s extended video interview with Merrifield talking about why margin percentage is not the best indicator of profitability, visit www.supplyht.com/video.