goal. Unfortunately, their customer segments differed substantially in importance, profitability, and service demands. Failure to recognize these differences meant results were declin- ing across the board: total revenue, new-account acquisition, and profits.


FINDING THE SOLUTION The company brought in a consultant who spent six months analyzing the customer base and recommending a more productive way to deploy sales, service, and other resources. Here’s what the consultant discovered: • The top 400 customers accounted for 80 percent of sales, with a gross-profit margin of 19 percent and an average gross profit of $150 per order.


• The next 800 customers rep- resented 15 percent of sales, yielded a gross margin of 24 per- cent, but a gross profit per order of only $30.


• The remaining 3,800 customers made up only 5 percent of sales, with an average 27 percent profit margin, but just $8 of gross profit per order.


• It cost the company about $40 to process each order, 60 percent of which was variable – thus wiping out profits on many orders. Pricing was often left up to a cus- tomer service person who had little understanding of value delivered, and who was often under pressure from larger accounts. The company was proud of its service to all customers but did not quantify service value. Some managers were worried about relying too heavily on just the larger accounts. Nevertheless, top manage- ment understood it had to focus its limited resources more wisely. The analysis showed that top ac- counts were subsidizing the rest of the business. Some other accounts, called “targets,” might be turned into highly profitable accounts. The crucial questions were: 1. Where to draw the lines between different types of accounts


2. How to change organization and


processes to sell and support more efficiently


3. How to fund higher levels of sup- port for the most profitable and potentially profitable customers The consultant recommended the 5,000 current customers be divided into four segments. The top 400 would be key accounts, the next 800 would be divided into target accounts and maintenance accounts, and the remaining 3,800 would be treated as “why bother?” accounts. To help hold or attract them, key


and target accounts would receive service enhancements that would also add value and might justify stron- ger pricing. These enhancements included proactive expediting of back orders, sourcing of non-stocked items, improved customer processes to reduce customer costs, faster responses from customer service, dedication of the best inside reps, free 24/7 emergency service, and free training and bar-coding. Operations managers were instructed to give pri- ority in picking and shipping to these key and target accounts first, then to maintenance accounts, and lastly to the why-bother segment. In addition, detailed rules were drawn up for servicing different ac-


count types: • Key accounts’ freight charges are prepaid, while target accounts can negotiate these charges.


• Maintenance accounts are as- signed a minimum order of $50, and receive reactive expediting of back orders as well as emergency service for a fee. Freight charges are non-negotiable.


• Why-bother accounts are as- signed a minimum order of $100. They are not eligible for emer- gency services and there is no negotiation of freight charges for these accounts.


In addition, the sales force was


reorganized. Thirty key and five target accounts each would be assigned to qualified outside reps, who would be specially trained and held account- able for providing measurable ben- efits to these accounts. Incentives for increasing revenue would be added for all outside salespeople, who would have to document activities by customer. An inside telesales group would proactively manage mainte- nance accounts. All inside reps were brought in from branch locations to headquarters, where customer service staff was also centralized. The six best inside reps


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AN INSIDE VIEW OF A SALES TRANSFORMATION


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