Why Customer Profitability is Important for Wholesale Distributors

Posted on: October 26, 2016 | By: Craig Thompson | Acumatica, Wholesale Distribution

By now you’ve already discovered that customers are the backbone of any industry. On a very basic level, without their business, your company would be without a flow of income. Even more so, without a loyal customer base, you could be limiting your business’s potential for growth. Nurturing and building relationships with customers takes a significant amount of time and effort on your part that simply wouldn’t make sense to repeat over and over unless you are retaining their business. Customers that are attended to, feel valued, and are making a profit in their own businesses are the customers that are ultimately going to stay with your distribution company.

customer profitability

Customer profitability is just as important for wholesale distributors as it is for your customers because when your customers do well, they will feel a sense of loyalty towards your business that will pay back in the long run.  Integrating your CRM and ERP systems is a great way to build positive relationships, while staying on top of all of the important metrics wholesalers track on a daily basis. Microsoft Dynamics CRM and Dynamics GP are two systems that pair nicely together, however Acumatica Cloud ERP also has built in CRM capabilities as well as a flexible pricing structure perfect for growing wholesalers.

Being aware of your customer profitability is a metric that is sometimes overlooked by many distributors, however being aware of just where your customers stand within your company will be beneficial for helping you better assist and run daily operations. A Customer Profitability Analysis is a great way to understand which customers are bringing in the most revenue for your company, how to strategically migrate customers towards being more profitable, or even how to identify future profit potential.


Determine Which Customers Make Your Wholesale Distribution Business the Highest Profit

One of the more basic benefits of tracking customer profitability is the ability to then determine which customers make your wholesale distribution the highest profits. Some of the most successful wholesale distributors swear by this technique and the virtual picture of your customer base is a great way to visualize which consumers you are making money on and which are causing you to lose money.

Do you have a client that purchases primarily low profit margin products? What about consumers that are big spenders and focus mainly on large profit margin items? Are there customers that purchase a mixture of both? These are great questions to keep in mind to help determine which customers are making your wholesale distribution business the highest profits, however it shouldn’t be the only factor that your team looks at. Complex specialized orders or high maintenance customers could ultimately create more expenses than their orders are covering.

Being able to identify these trends in customer purchasing patterns can allow your business to focus its time and energy in your clients that benefit your business the most. This not only gives them the personalized service that they request, but also allows you to cut ties with negative consumers that could potentially be tying you down to free up time and attention to attracting and maintaining good customer relationships.


Strategically Migrate Customers to Improve Your Finances

Another benefit of customer profitability for your wholesale distribution business is not only determining and holding onto your most profitable customers, but also finding value in working to migrate mid to low range profitability customers to be more profitable for your business. This can be done by examining each customer to determine where exactly you should be pushing and where to lay off. Some customers can afford to give hefty discounts while others may end up losing your business money.

You may also be able to find trends that can allow you to better negotiate prices, bundling options, etc. depending on your business model. By knowing your customer profitability, you can identify options such as reducing the internal costs you spend serving customers and devoting your time and resources into more profitable customers, increasing product prices or even just improving the selection or bundling options that your customers are purchasing. Being fully aware of how your resources are being spent is crucial for determining areas of improvement and helping you migrate your low profit margin customers to a higher standard.


Identify Future Potential Profits

Which customers do you want to hold onto and devote the most time to? In the long run, it will be the customers with the highest lifetime value. Improving customer relationships so that you have a larger base of loyal, lifetime customers is a benefit of putting resources into this segment of your company.  By identifying this lifetime loyalty potential in your high profit customers, your wholesale distribution business will be able to better allocate your time and resources to maximize results.

Customer Profitability Analyses are excellent ways for wholesale distributors to gain insight into their business and determine where they can best focus their resources for future growth. Logan Consulting is a dedicated Acumatica and Microsoft Dynamics partner in the Milwaukee and Chicagoland areas and is dedicated to providing our clients with the best ERP and CRM solutions for their business model. For more information on our services or any of our Microsoft Dynamics, QAD or Acumatica products, contact us here and one of our partners will be in touch.

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