Do you know your profitability on a customer-by-customer level? Most distributors don’t, but leading companies are optimizing distributor profitability by answering a few key questions quickly and accurately:
- Who are our most profitable customers while considering our cost to serve them?
- What is our service policy—in other words, how often do we serve each customer and why?
- Which customers are requiring more service than their revenue warrants?
- What was the total cost of service, including sales merchandising and delivery?
- Which accounts make my drivers wait or take too long to deliver?
Getting answers to these questions is more than just a matter of listing all your customers in a spreadsheet, sorting by total volume, and focusing on providing your best service to A-list customers. But that’s the way many distributors do it.
This is a superficial way of evaluating profitability. But getting more granular data isn’t easy—and even when you have it, it’s not always clear what to do with it.
The most reliable way of optimizing distributor profitability is to establish a 360-degree view of each customer. Here’s why.
What’s Cutting Into Your Margins?
Your distribution company is providing “last mile” delivery services of beer, wine, food, paper, and other products. Your drivers are returning to the same restaurants, stores, and mini-marts frequently throughout a week or month to keep the shelves stocked.
Each of these visits costs your company in terms of driver pay, fuel, and wear and tear on your vehicles. Without a clear breakdown of what you’re spending to service each account, it’s impossible to gauge profitability.
With a 360-degree view of each customer, you can not only start optimizing distributor profitability, but also strengthen your customer relationships.
It works like this: instead of merely looking at how much product you’re selling to each customer and trying to nurture the relationships that bring in the most revenue, you can start breaking down how much you’re spending to maintain that business.
For example, your biggest client may represent 20 percent more business than any other single account. But when you have a granular view of that account, you can see how many times per week your drivers are visiting that client to make deliveries. You can also calculate how much of their time it’s taking and how much you’re spending on fuel.
You might notice that your drivers regularly visit on Tuesdays and Thursdays, but they often make a third visit on Saturdays. You might then notice that your salesperson for this account is supposed to visit the client every Monday to take an order, but he sometimes doesn’t make it until Wednesday. This creates the need for extra deliveries in the week.
Digging deeper, you can determine how much time these extra deliveries take up for your drivers, which of your other clients they can’t service as a result, and how much cost they’re creating on these extra deliveries. Suddenly, your top client by revenue might not look as valuable as you thought, given how much you’re spending to service their account.
Better Insights for Optimizing Distributor Profitability
With information like this at your fingertips, you can start to make better decisions about how to keep your clients happy. You can take steps to make sure your salespeople are keeping their appointments and taking orders timely. You can then cut down on extra deliveries.
You can also dig into every customer relationship to make sure your drivers are following the ideal routes from your route planning system as they make their deliveries. This step alone can help you reduce your fuel costs by 10 to 12 percent.
The list of potential improvements goes on. You can see how often your drivers are hitting their delivery windows, identify the root causes behind late deliveries, and take steps to repair those customer relationships.
Perhaps most importantly, you can develop an accurate picture of the profitability of each customer relationship, and then develop a service level policy that ensures you’ll keep that customer happy without bursting your budget. For some customers, that might mean going from two visits per week down to one—and for others, it could mean just the opposite.
It’s the smartest way of optimizing distributor profitability, and it all starts with the right technology solution.
How to Get the Perspective You Need
If you’re serious about optimizing distributor profitability and forming a 360-degree view of each customer, look for a route execution and analytics tool that lets you analyze the data of each one of your routes alongside the size of each order. This will help you develop a more realistic understanding of how long it takes to service your customers—and give you the perspective you need to optimize your profitability.
Gridline Last Mile is designed to do just that. For more information and to request a product demo, please call us at 855.470.0545.