Distribution companies in search of organic revenue growth can uncover a steady stream of it by more effectively managing their portfolio mix.
This can be achieved with portfolio mix analysis and optimization. For example, some hospitality companies have used this approach to strike the optimal balance for their different customer segments, such as transient and group.
Yet any company in almost any industry can benefit from a portfolio mix analysis. A portfolio mix can be applied to customers, segments, products, marketing, and media/advertising.
For example, a logistics company might want to analyze the mix of its portfolio of customers based on their need for current demand/revenue generation, or for long-term customer lifetime value. In doing so, it would learn they are generally divided into three groups:
- Strategic long-term customers: These tend to be larger long term anchor customers providing a consistent base of business and revenue. They typically generate high volume for your business, but less profit than other customer segments.
- Tactical, shorter-term customers: These are customers who contract for shorter periods of time, usually for a several months to one year. They are typically mid-sized businesses, but generate more profit for than your large strategic customers.
- Spot market customers: These are the customers with a specific need that bring short term or one-time business. Cost isn’t the issue for them; availability and speed of delivery are. Because of their immediate need, these customers tend to be less price sensitive, and ultimately the most profitable.
The key to success for a logistics company or any for that matter is understanding what the customers look like in each group, and what the mix of each segment should be so as to strike the perfect balance between volume and profitability. For the logistics company, setting the right balance might mean not putting all of its eggs in the spot market basket, even if it’s the most profitable. Do that, and suddenly you only have enough volume to fill 10 of your 60 delivery trucks – which is obviously under-utilizing capacity and leaving money on the table. Conversely, selling too much of your capacity to strategic customers could increase utilization and revenue, but result in significantly less profit.
However, Portfolio Mix analysis and optimization shouldn’t be a one-time exercise. Your target mix of business should shift with the market. In a down economy, your company might be wise to rely more heavily on those strategic long-term customers, who are important to hold onto in times of trouble. But in a high-riding market where volatility rules and big profits await, it might make more sense to shift toward a greater proportion of spot business.
An optimized portfolio mix can bring the right balance to your business. And balance is always good business practice, particularly if it achieves consistent organic revenue growth and profitability.