hen managing at the EBITDA level, you become aware of how much purchasing, warehousing, logistics, and sales eat into the margin of customers (or products). By identifying the true profitability of products and customers, many hidden pain points in operational practices can be uncovered. When a customer or product, previously considered excellent, turns out to be unprofitable, the reactions, in our experience, are often strong. However, only after identifying these pain points can concrete actions be considered – and profitability improved.
From a management perspective, it is therefore essential to manage sales at the EBITDA level. How should these critical changes be implemented within the company?
Organize the identified customers into profitability order as a WHALE curve, and you’ll see where your company’s profits are disappearing. The shape of the curve varies between companies, but the message is the same – a significant portion of customers are unprofitable. So how can you flatten the curve and shorten the unprofitable tail?
Here’s one way to act – divide the curve into three parts for analysis:
1. Profitable customers (rising part)
-> Sell more, reward, and expand offerings
2. Break-even customers (the whale’s back)
-> Engage through benefits and bundle offerings
3. Unprofitable customers (declining tail)
-> Turn them profitable or let them go
A business with more profitable customers becomes a more profitable business.