Alignment for Profit

Copyright 2008 by Charles R. Schaul, Boulder, Colorado. All rights reserved.

In a recent engagement we worked with a warehouse distributor of an automotive commodity, conducting what we call a “customer alignment” project for them. As is almost always the case, we were able to show our client that better alignment with their customers would produce substantially more profit, conservatively estimated at more than 30 times our fee for the engagement.

In speaking with customers of our client we learned that compared to competition our client had excellent inside sales personnel, provided far better delivery service, handled the few errors in shipping and pricing quickly and with no hassle, and provided excellent warranty claims handlinThey also were better in helping customers keep their inventory clean and balanced.

Many customers said they were willing to pay an extra $1.00 to $3.00 per unit for the overall level of service, especially the delivery service.

A second thing we learned was that some customers purchased only low priced products, but received all the same excellent services. Adding the cost of handling the product in and out of the warehouse to the cost of the other services provided, we found the company had negative gross profit on sales of low end products. Obviously, if a customer bought only low end products, the company lost money by selling to that customer.

As a result of the study we recommended adding $1.00 to $2.00 to the selling price of high end products; and either dropping or reducing delivery service to customers buying only low end product, The increase in profit from implementing these recommendations added very significantly to the profit of this automotive commodity warehouse distributor. The margin in this industry is very thin. As a result of our work our client added some 30% to their gross margin.

As usual, we finished the engagement with a feeling of great success. We had proven once again that alignment with customers produces both quick and long term increases in profit, as well as customer loyalty.

Charles R. Schaul, Partner of SixPillars Research Group, focuses on increasing business profits by resolving the problem of customer attrition. Aligning companies with their customers; generating and implementing strategic initiatives; and promoting employees’ customer focus through commitment, responsibility and accountability combine to achieve the result.