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Profit Value-Based Customer Segmentation

Bruce Merrifield, President — Merrifield Consulting

• profit analytics • WayPoint Analytics • market segmentation • profit strategy • High Potential Accounts (HPAs) • High Volume Accounts • High Efficiency Accounts (HEAs) • High Leverage Accounts (HLAs) • customer segmentation • Randy MacLean • market share • customer profitability analysis • Bruce Merrifield

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Profit Value-Based Customer Segmentation

If you'd like to understand, in detail, how your business makes and loses money, listen as Randy MacLean and Bruce Merrifield of WayPoint Analytics discuss profit value-based customer segmentation.

Whether you use WayPoint or not, you will benefit from a new kind of segmentation that looks at the profit value of a customer from a cash production perspective and how this relates to the NBC, or the profit line, for each customer.

Looking at accounts producing large margin dollars is a great place to start, and these accounts can be segmented into four categories:

• High Leverage– These are the top-tier, super profitable accounts. They have well above average cash production, and they also have below average expense rates.

• High Efficiency– These accounts create above average cash flow and have a super low cost to serve percentage, lower than high leverage accounts.

• High Potential – These accounts create above average cash flow but have expense rates that are too high, so they are not contributing to the company yet.

• Profit Drain– These produce above average cash flow but actually consume it all, and more, in resources. They wind up losing money for the company.

With this data, you can immediately start increasing profitability, and high leverage accounts are the best place to start. Sell more to them. Figure out what is working well with them and apply it to more products.

High efficiency accounts are the best place to find growth. Bring in more accounts like these, because they will produce more profit dollars more quickly than the rate you have to increase service infrastructure costs to serve them.

Another approach you will want to consider is to improve the efficiency of the relationship for high potential and profit drain accounts for the benefit of both sides. This can be accomplished by getting the customer to put the same, or more, amount of product on fewer orders.

Detailed costing on a line-by-line basis helps you understand where you make or lose money. With this knowledge, your sales force can focus on doing the right things for the right accounts, rather than just bringing in more business.

For more information about Bruce Merrifield, visit: www.merrifieldact2.com

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