A large regional distribution company came to Blue Pearl with a profitability question. It was a broad question – “How do we become more profitable?” The CEO believed the issue was internal, that cost-cutting was the answer. However, Blue Pearl took our usual “no assumptions” approach and left the door open to many options. We evaluated both sides of the profitability equation – revenue and expenses.
After an exhaustive expense analysis, we determined that almost all company expenses were in line with industry standards with the exception of wages. While hourly wages appeared on the surface to also line up with industry benchmarks, when compared to revenue levels, the portion of expenses spent per revenue dollar earned was extremely high. This said one of three things – prices, or volume, or both, were low. More digging and analysis revealed that the issue was driven by a sales strategy that incentivized the sales staff to focus on low margin customers as heavily as high margin customers. The staff was rewarded for bringing in volume and absolute revenue, without any consideration to the expense required to service the customer and the resulting profit.
Blue Pearl addressed the issue with a comprehensive plan. First, we needed to implement a data driven approach to measuring customers. Second, we needed to communicate these measures to the sales staff, and realign thinking to customer profitability, rather than just volume or revenue. Finally, we needed to restructure compensation to reward profitability increases. Over a period of several months, we implemented an effective sales strategy that shifted the company’s customer base dramatically, and resulted in the CEO increasing sales staff commissions by 15% based on improved profitability. The sales staff actively participated in customer targeting, and openly appreciated understanding which customers deserved increased attention. One commented “I love not shooting in the dark anymore.” Blue Pearl provided the target, the company hit the bulls-eye.