I recently heard a sales manager defend a pricing concession by saying, "This customer does huge volumes with us." Once we analyzed their actual profitability contribution, the truth was shocking.

High-volume customers aren't always high-profit customers. Pricing concessions that seem justified by volume actually destroy more margin than they create.

Today, I'll explain how variance analysis reveals the true profitability story behind every customer relationship.

 

The Customer Profitability Blind Spot Every Leader Has

The Challenge: Some sales teams make pricing decisions based on the revenue impact without understanding the complete margin story.

Your largest customer is requesting a 10% discount. The sales team argues that the order volume justifies it, but you’re unsure whether the additional volume truly offsets the margin loss across the entire relationship.

Hidden Dangers:

• Pricing concessions that destroy more margin than they create
• High-maintenance accounts that consume resources without adequate return
• New customer targets based on revenue potential instead of profit contribution
• Retention strategies focused on the wrong accounts

The Truth: Analyzing variance at the customer level shows whether increased volume truly offsets the margin trade-offs.

 

Customer Spotlight: Regional Building Supply Distributor

This distributor struggled with the profitability of new customers acquired in the last 12 months.

The Surface Question: Which recent customers should receive pricing concessions, and which new prospects should be prioritized?

What Variance Analysis Revealed: Our customer analysis showed $68.3K in pure gross margin from new customers, with specific identification of which products  drove the what.

The Strategic Breakthrough:

• Retention insights: Identified specific customers whose loss would impact margins most.
• Acquisition targets: Found customer profiles that generate highest margin dollars.
• Pricing strategy: Validated when volume gains actually justify margin sacrifices.
  
  

How Customer Variance Analysis Works

Step 1: Analyze Customer-Level Margin Contribution

Analyze each customer's impact on: 

• volume variance (their ordering patterns), 
• price variance (changes in pricing), 
• product variance (new products they’ve started buying or stopped buying), 
• customer variance (retention value), 
• mix variance (product diversity), and 
• cost (whether larger quantities are improving your margins). 

Break it all down in absolute dollar terms.

Step 2: Validate Volume-Margin Trade-offs

For each pricing concession, measure whether the resulting volume variance compensates for the negative price variance across their full relationship.

Step 3: Prioritize Based on Total Contribution

Rank customers by their complete margin dollar impact, not just revenue size. Focus retention and acquisition efforts on highest-contributing profiles.

 

Why This Transforms Customer Strategy

"Within five minutes, you’ll have a snapshot of exactly how they are buying, where and what they are buying," noted one operations executive about customer-level variance insights.

Customer Strategy Benefits:

✅ Smarter pricing decisions → Know when concessions actually pay off!

✅ Targeted retention → Focus on customers with highest margin impact!

✅ Efficient acquisition → Pursue prospects with proven profitability profiles!

✅ Resource optimization → Invest time where it generates the most margin!

Real Example: One distributor discovered that their "problem customer" who demanded constant attention actually contributed $96K in pure margin — completely changing how they managed that relationship.

 

Take Action: Transform Your Customer Strategy

Ready to base customer decisions on profitability instead of just volume?

Schedule a Customer Portfolio Review

See which customers truly drive your profitability and which may be costing more than they contribute.

Thank you for your continued partnership with Intuilize. We're committed to delivering value that goes far beyond what meets the eye.

 

Contact us at support@intuilize.com for any questions.

Let’s uncover the full potential of your business together!

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