RA Quick Insights Video Series: Driving rapid margin actions with transactional data analysis (Part 1 – Margin vs. Sales Matrix)

It is a visual that places each customer by gross margin percentage and cumulative net sales, based on transactional data for the trailing 12 months or another period such as a quarter. Customers are then grouped into six performance clusters, so pricing, commercial and finance teams know where to act to raise margin performance.

Pull transactional data for the period you want to review, such as the trailing 12 months. For each customer, calculate gross margin percentage and cumulative net sales, which is the running total of net sales, then plot the customers and split them into six clusters. A self-serve BI tool such as Power BI or Tableau, or even Excel, is enough.

In the example, a vertical line shows that 12 percent of customers drive 80 percent of net sales, while almost 90 percent drive only 20 percent. Many B2B companies struggle to reach the ideal relationship between customer size and margin, where the smallest customers have the best margins because they receive the smallest discounts, rebates and other sales credits.

These customers sit in the top right corner. In the example they are 6 percent of customers but drive 40 percent of net sales and 60 percent of gross profit. Nurture them so they do not defect to competitors, plan and communicate price increases carefully, allow forward buying around price increases where possible, and frame the savings you have delivered.

For large customers with room for higher margins, run a rate and mix analysis, and if product mix is the cause, trade them up to higher-priced products. Large customers whose margins fall in the bottom 25th percentile hurt operating profit with every margin reduction, so manage those relationships carefully, raise prices over time, and, depending on cost to serve, consider letting some churn.

The dead zone is the bottom left cluster of small customers with poor margins. In the example it holds 20 percent of customers but only 4 percent of total gross margin, which makes it priority number one. Fixes include list price increases, fewer discounts, lower rebates, or a pay-for-performance rebate structure that rewards growth. Some of these customers will be lost to competitors.

No. For small customers with below-average margins, a price increase does not have to be a list price increase, and most often it is not. You can rationalize the discounts, promotions and other off-invoice credits they receive. Reviewing the clusters every quarter and acting on the easiest fixes can raise gross margin by one to five points over a year.