Last week we discussed the many reasons why Profitable Growth has become such an important issue for most US manufacturers. Among the reasons are:
- Recessionary economic environment (particularly with the Dow under 11,000)
- New exporting opportunities created by the lower value of the US dollar
- Outsourcing & impact on volume-driven contracts
- Changing customer buying behavior
- Reduced margins
- Higher material & commodity prices
- Accelerating pace of change
The first step on the road to profitable growth is evaluating the current state of your business, “warts & all”. I suggested that you conduct a Customer Analysis to begin to identify what your best options are to stabilize your Core Business with a focus on profitability. This week we’ll take a look at the next steps in “playing small ball” with this analysis while beginning to plan for the Big Picture of profitable growth. For you non-baseball fans, the goal of small ball is to hit singles and doubles and be opportunistic vs. going for the fences and trying to hit home runs.
If you have completed a quick & dirty customer analysis by ranking your existing customers by total sales, margin, hassle and potential, you undoubtedly now have some insight into who your best customers appear to be. To refresh your memory this analysis used the following approach:
- Print a list of all your major customers over the last 3-5 years ranked by total sales
- Draw three columns beside your customer list marked: Margin, Hassle Potential
- Gather your sales team and discuss each customer
- Rank each customer using 1-3 (1 = best, 3 = worst) for Margin and Hassle (how much care & feeding the customer requires)
- Ask your team to rate the Potential for each customer using +, ++, +++, or -, –, —
You can review last week’s posting for more details on this approach. After you and your sales team have identified the best customers that you appear to have in terms of Margin, Hassle (cost of selling) and Potential, let’s discuss what you can you do with your least profitable customers.
Ask your team why each customer is unprofitable and what your options are. The goal should be to Move Them to be better and more profitable customers than they are currently, not to Fire Them. Try the following approach:
- Segment your list into Good and Bad ones using the Potential column, and for the Good ones determine if any of these customers really have decent potential and why.
- One strategy is to go visit each customer having decent potential with a small cross-functional team and dig into what you can do to add more value, solve their problems and to make them more profitable. Sometimes simply showing up will improve the relationship and may even result in new or more profitable work.
- Another strategy is to simply raise your prices with these customers since they’re not profitable now and let the chips fall accordingly.
Now, let’s discuss how do you begin to plan for the Big Picture of Growth while you continue to play small ball on your Core Business. One of the best practices I have found regarding the Big Picture for Growth comes from Jim Collins, author of Good to Great. Take a look at his website at to explore how some of his thinking applies to your business. See www.jimcollins.com