Sales Margins

In every business, whether it is a production or a service business, increasing the sales margins is always high on the priority-list. This is not different in a printing business.

Increasing sales margins can be accomplished by either increasing sales prices or lowering the costs. In this article we will explore a third option : we will explore the existing customer base and the sales margin per customer in order to keep the most profitable customers and renegotiate pricing with existing but less profitable customers.

We will describe 2 tools. The first analysis, ABC +, focuses on maximizing the sales margins. The second analysis, RFM, focuses on keeping the current customer base by pointing out the customers you are about to lose.

ABC+

In the ABC+ analysis, all customers are grouped in 4 different segments. The average monthly revenue and the average sales margin determine the segment a customer belongs to.

The PROTECT customers (top right) are the customers with a higher than average revenue and a higher than average sales margin. It is obvious that those customers should get most of the attention to reward their loyalty.

The GROW customers (top left) are customers with a higher than average sales margin but a lower than average revenue. As these customers have a good sales margin, it is advisable to review if a volume or revenue increase can be obtained. It’s definitely worth while visiting these high potentials!

The IMPROVE customers (bottom right) are the customers with a higher than average revenue, but a lower than average sales margin. Increasing sales margins for these customers can probably only be accomplished by raising their sales prices. This should be the target for the next negotiation round.  

The CLEAN UP customers (bottom left) are the customers with both a below average revenue and sales margin. A sales price increase for these customers is an option, but in the end, you should consider having a ‘dump’-talk based upon these 2 criteria. It will leave production capacity for the top left growth customers !

RFM

The RFM analysis segments customers in 9 (ik tel er maar 9 ipv 11 op de screenshot hieronder !) different RFM classes, ranging from “champion customers” all the way to “lost customers”. 3 different measures are used to determine the RFM class of a customer : Recency, Frequency and Monetary value.

The recency is the amount of days since the last order the customer was booked.

The frequency is the number of orders booked in the last 12 months.

And the monetary value is the total value of the orders of the last 12 months.

For each of these 3 measures, customers are ordered from most to least : recent, frequent or valuable. Afterwards, customers are segmented to one of the 9 different RFM classes (Mss toch toevoegen hoe de klasses gemaakt worden, want met  en 1 in elke klasse heb ik er maar 8). Let’s take for example a customer that ordered recently, has a high frequency, and a high monetary value. This customer will be segmented into the “champion” RFM class. Another example is a customer that didn’t recently order, but has a high frequency and monetary value, then this customer will be segmented into the “at risk” RFM class (since why did he not order recently ?).

As the RFM analysis continuously visualizes a list of customers that you could be losing, it is the perfect monthly report for the sales department as it gives them an immediate action list to avoid customers going away.

12/03/2019