Wholesalers: why do your small customers also matter. An analytical answer.
The Tip of the Iceberg: Unveiling the Hidden Margins in Your Business
In our on going series of blog posts, we've explored the relevance of measuring customer churn, emphasizing the importance of seeing the forest for the trees in your wholesale business. Today, we're delving deeper into this concept, unveiling the hidden treasures that lie beneath the surface of your client base – a phenomenon we like to call "the tip of the iceberg."
The 80/20 Paradox
It's a common practice in business to focus analytical efforts on the wholesalers’ top 10 or 20 clients. These are often the big players, the high-volume customers that generate the bulk of the wholesaler’s sales. Losing one of these customers,therefore, may sink your business.
But here's what our data analysis shows: In most cases, although these top clients contribute asignificant share of your total revenue, they are not responsible for most of the wholesaler´s gross margin. What our analysis shows is that the rest of the wholesaler’s client base – the smaller players who often fly under the radar – represent the lion's share of the margin generated by the business.
Unmasking the Hidden Margin
Unconvinced? Let's take a look at the numbers.
The analysis in the video shows the share in gross revenue by the top 10 and 20 clients. What we see is that, in this example, created using randomized wholesalers’data, the top 20 clients represent only 21% of the total margin generated!
What this brief exercise shows us is that putting aside the inherit biases that tell us that“bigger is better” and trusting the power of data analytics, we can see that customers who might not make a big splash are the ones who have a cumulative impact on a wholesaler’s business's bottom line.
Imagine your business as an iceberg, with the tip representing your top clients and the massive, unseen portion beneath the waterline as your hidden gems: while the tip may be visible and impressive, it's the hidden bulk that has the power to make or break your business.
The Moral of the Story
Ask yourself, do you know what is going on with the clients that don´t make your company´s top 20 or 30 or 50?
Even if our gut feeling tells us to focus most of our energy on our biggest clients, we should not let the imponent picture that can be seen above sea level blind us to the untapped potential lying beneath the surface. Wholesale businesses thrive not only because of their top clients but also due to the cumulative margin generated by the many others. By dedicating your analytics efforts to uncover the hidden margin, you'll gain a more comprehensive understanding of your business's financial landscape and an edge against your competitors.
To learn moreabout the risks of focusing only on what lies above the surface, and how to use data insights about all your clients, no matter their size, to increase your gross margin, send us a demo request using the button below!