It’s that time of year again when business folks start to think about New Year goals, resolutions and planning. This year I’m suggesting you add another topic to the mix—internal and external account analysis.
Let’s start with the importance of internal account analysis.
If you have been in this business more than a few years, you probably have accounts that require some changes.
Step one to determine internal account analysis is adding up your sales, gross profit and net profit by account. While calculating sales and gross profit will be easy, calculating your net profit on an account will require a little more work. To calculate net profit by account you will want to subtract the following from your gross profit:
- Total approximate hours to serve the account annually times the impute dollar per hour for the value of your time
- Total customer service/account manager hours the serve the account annually times their hourly wages (benefits plus taxes)
- Warehousing costs including receiving, stocking, picking, packing and cost of ownership, if applicable
- Online company store charges if you are not passing some of them along
- If your customer habitually pays late (over 45 days) you need to impute your approximate cost of money
- Any other significant costs such as the hours of a graphics designer if you are not passing along design costs
A brief sit down with your team will help you quickly estimate the above additional items. And what you find may surprise you! After reviewing your internal account analysis, you will find accounts that require significant changes including:
- Accounts no longer worth your time – delegate these accounts to your customer service/account managers or use them for a base to recruit new sales reps
- Accounts that must increase your profitability by raising gross profit and/or passing along more costs
- Accounts that might be costing you net dollars – if you cannot improve the situation you may need to stop doing business with them
Remember, it’s important while reviewing your internal account analysis to try and understand the total account potential. If the account has substantially more potential than you are currently earning you may proactively choose to continue “investing” in the relationship with the goal of earning much more of the total potential.
In my next blog, I will go over the steps to conduct an external account analysis.
