Change Habits To Save Your Net Margin
Originally Published: DIAA.ASN.AU, August / September 2019
Are the details in your customer contracts shared with key staff? Do your internal and customer KPIs compare well? Do you shine a light on business blind spots and have tough conversations when necessary? If not, your net margin is suffering. Paul Allen explains.

Pitfall: Customer contracts are kept confidential

When it all boils down, very few secrets can
be kept inside a company. There are always
a few people who can be relied upon as a
source of useful ‘unofficial’ information and
However, no one seems to know the
details contained in customer contracts. This makes no sense, since large customer contracts are the lifeblood of most suppliers’ businesses and can account for upwards of 60% of total revenue.

If you ask any medium-to-large Australian B2B supplier whether their staff members outside of sales have seen the contracts containing the obligations of their company to its top five customers, I bet you’ll hear a pin drop.

When it’s announced that the business is going for a big contract with X customer that’s worth Y amount of money, all eyes

are on the negotiation. Eventually, papers are signed and the contract is filed away, under lock and key. This is when everything starts to fall apart.

I’ve heard many reasons why businesses don’t share supply contracts with their key staff. One of the most common is that contracts contain highly sensitive information that has the potential to erode competitive advantage and destabilise relationships with other customers. It would be more damaging still if the contracts were to fall into the wrong hands and be made public.

So, there is merit to safeguarding the confidentiality of contract details, but not enough to justify the practice of keeping your own staff completely in the dark.

I do not suggest that the whole contract should be circulated, but rather key summaries as they pertain to individual functions, minus commercially sensitive data.

A recurring reason for not sharing vital customer information is that businesses simply don’t trust their staff enough. Over time, this fear or overprotectiveness around staff knowing functional specific contract details becomes part of the cultural norm.

Businesses don’t realise how much value is won, lost and foregone every day when staff have no knowledge of what ‘good’ looks like, contractually. So, they just keep on doing what they’ve always done.

One of the biggest prices your business will pay for not sharing customer contracts with your staff is the loss of employee engagement. Staff members don’t see themselves as part of ‘the big game’ and the very frontline staff members who could ensure contractual compliance have no opportunity to be vigilant or enforce terms.

Need a refresher on the definition of net margin or the pitfalls already covered in the last two issues of this magazine? Simply scan the QR code to download the PDFs of the articles.
Much value is won, lost and foregone
every day when staff have no knowledge
of what ‘good’ looks like, contractually.
Staff members who are kept in the dark fail to realise the importance of their role. They often have no idea how much they contribute to the profitability of the business. This is true whether they are part of logistics or accounts receivable.

I’m told that creating a great work of art takes many hours of vision, creativity and sheer willpower to complete. A long negotiation that culminates in a valuable supply contract is like a masterpiece. The same commitment to vision, creativity, work and willpower is required to achieve a successful outcome.

Why not put succinct summaries of contracts on display? Why not make them available for viewing by those functions in the business who could gain so much and contribute even more by seeing what they contain? Even a simple ‘toolbox talk’ on the relevant sections could be of great value.

Pitfall: Internal KPIs outnumber customer KPIs

Let’s take a minute and look at some typical work tasks for specific business functions and some potential outcomes.

A sales representative is generally expected to complete a set number of account calls in a day. If this target is rigid, it may mean that the quantity of calls overtakes the focus on quality customer interactions, which could ultimately deliver a higher profit.

Exceptionally high production quality targets, with their successful pursuit of placing production above the acceptable specification level, could reduce the overall productivity. Conversely, a goal of very high productivity or output might strain the delivery of quality levels.

Accounts receivable’s relentless invoice chasing, without being aware of broader customer relationship and contract conditions, could easily disengage a long-term customer who is presently struggling with cash flow.

Each function has a specific set of KPIs that they live and breathe, and yet it’s often only the salesperson and the account manager who know the customer-related KPIs, such as customer satisfaction, revenue or total units delivered.

Most functions work to general, consolidated targets that relate to total cost, but not to unique contracted customer targets.

Functions focus on their individual KPIs on logistics or warehousing or transport, while the granular management of customer performance and profitability remains obscure.


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In business, as in sport, when going
for the win, a champion team is
preferable to a team of champions.
This translates into a clear cost in terms of ultimate business performance.

It’s widely upheld that a champion team will always beat a team of champions.

That’s because a champion team plays together for one goal, while a team of champions plays for individual glory.

In the workplace, a team of champions is likely to create division and hostility between functions, not unity. It can foster a culture of blame or indifference, with individuals being preoccupied by internal conflicts and achieving their own results, rather than being focused on external factors that drive overall company performance.

Most B2B suppliers have four or five major customers that underwrite the business. If you are not managing customer profitability with the assistance of customer-focused functional KPIs and regular reviews, you miss seeing where value is lost or gained as it gets mixed and absorbed in the total ‘cost bucket’.

In recent times, suppliers have started to introduce Key Account Management Teams

(KAMs) to manage their key customers.

These teams are made up of crossfunctional representatives from within the supplier and seek to align the service experience to customer expectations, while uniting the respective functions.

A round table, where cross-functional staff share the ownership of an established set of customer KPIs, can help circumvent much internal disharmony and value loss.

Everybody has a seat at the table, with equal vision and voice.

Pitfall: Tough conversations aren’t practised

Tough conversations between suppliers and customers are required all the time, at every level of function-specific interaction.

Your staff members can prepare for such conversations by practising them.

The available manoeuvres could be as simple as saying ‘No’ or pointing to a contract clause, or more elaborate, such as countering a customer’s demand with an equally unrealistic request of your own.

About the author

Paul Allen has more than 25 years of experience in helping organisations unlock value with their contracted business partners. As a senior sales manager, marketing and general manager, Paul has worked with companies including Lion, Simplot, Tabcorp, Australian Paper and O-I Glass. Paul offers businesses a free margin review consultation. To find out more, visit Paul’s website,

Let’s say a customer calls and says something like, “I’m out of stock and I urgently need next Monday’s scheduled delivery before close of play this Friday.”

Your staff usually acquiesces, accepting the extraordinary circumstances and believing that the customer is always right.

Fear and fatigue are powerful drivers. That’s why it’s important to take small steps when responding to these tough situations.

The last thing you want when you’ve had a rough week is to find yourself in the midst of a new customer storm. But if staff members don’t speak up or act in your interest, it costs you doubly.

As a supplier, you want customers to be satisfied and remain, but on your terms. If customer satisfaction is only ever on the customer’s terms, your business margin will get picked off around the edges.

Now is the time to develop and practise the “If you … I will” clause for working with customers. It sounds something like this: “Great to hear that your business is going so well. If you would now like your delivery

Scrutiny is invasive and uncomfortable,
but also essential to identify business
blind spots where margin is eroded.
brought forward to Saturday, I will organise for a special delivery, provided you are happy to cover the $1,500 weekend service surcharge.” Or it might be: “If you need me to come and look at your operational disruptions at 3 am on a Sunday morning, I will do it, provided you pay the $2,000 call-out fee.” Or even: “We are more than happy to have our design people mock-up 15 different samples for your research and make a further 10 refinements thereafter, provided you are prepared to pay the agreed per-hour rate for their time.”

By framing your responses to customers in the “If you … I will” language and practising the anticipated responses to “above and beyond requests,” the tough conversations become so much easier and your staff become ‘match fit’ in dealing with what were once confronting situations. More importantly, you continue to fortify a mutually respectful relationship that begins and ends on your agreed terms.

Pitfall: Blind spots remain blind

It’s tough to ask for help, and it’s even tougher to ask someone to look at what’s going on in your own patch. Scrutiny and spotlights are not things most people invite into their lives on a regular basis. It feels too confrontational, too invasive.

We also get scared about what we might find. As a supplier, if you were to find out that your business had lost so many margins, so much value, over so many years, all while you were at the tiller, it would be embarrassing, disappointing and even maddening. It is often easier to point a finger at external causes.

All businesses have blind spots. It is near-impossible to form a full picture of what’s happening in your business when you are in the thick of it. Dysfunction across the business, left unchecked and unmonitored, often leads to deep cultural disconnects that can be near-impossible to repair.

It’s impossible to control every aspect of your business, but margin erosion is well within your control. Ask for help. Take charge of your profitability and accountability that underpins customer contracts you have signed. Develop strong relationships built on mutual respect. Take back your margin!

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