Are You Guessing, or Do You Know?

In small businesses across America, teams of executives are discussing what to do now that the economy is back. Some are wondering why they aren’t seeing sales rebound. Others are hiring like crazy. What accounts for the difference? The industry you are in? How good your product is? The attitude you have?

The difference may be how much you really know about your business. Many of my clients, when asked, “How does your customer choose you over other alternatives”, tell me what they think is the reason. Few really know. After a discussion, most say, “I think we better find out”. If you haven’t talked to your customer lately, NOW is the time to ask important questions, including “what can we do to serve you better?”

The other question clients struggle to answer is “What part of your business contributes to profit?”. Most companies keep consolidated financials and have not looked at customer tiers (Where is the break in your top tier of customers by order size? What % of your business do those customers generate?) The same questions can be asked of product, sales district, or other key variables. Can you answer the question?

Averages are just that–averages. According to a new book, Islands of Profit in a Sea of Red Ink by Jonathan Byrnes, in most companies, only 40% of the business is profitable and it carries the rest. Which 40%?

The newest means of understanding your business is called Enterprise Analytics. It is a deep dive into the variables of your business to be sure you know enough to make informed decisions. If you know that a customer is not profitable–what can you do? Sure, you could fire them. Or, you can try to make it a win-win by making sure they are ordering the best products, getting shipments on a more economical or efficient schedule (for you), or make other changes to how you work with them to ensure that both of your needs are met. Customers are NOT created equal.

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