On the surface, your business is successful. Revenue is growing, more products are being introduced, capacity is expanding, and new customers are being added. You’re busy. So why change anything?
Because growth’s silent companion — complexity — is eating a large part of your profitability.
Studies show that complexity can consume up to 40% of a company’s earnings. The whale curve illustrates how complexity only adds value up to a certain point, after which it begins to destroy value.
At Inact, we typically see three scenarios when trading and manufacturing companies grow:
Profitable growth: Revenue exceeds investments. Both top and bottom lines improve.
Break-even growth: High revenue is offset by equally high investments.
Unprofitable growth: Investments in growth exceed the revenue generated.
Avoid unprofitable growth
Growth ambitions often show up as more product introductions, broader assortments, new customer segments, new markets, and new distribution channels — all positive and healthy initiatives.
But these strategic moves come with a tail of costs that management must understand if growth is not to turn into break-even or loss.
Studies show that only two-thirds of a company’s customer and product mix is profitable.
The question is: Can companies do better?
Our experience says: Yes.
Your growth challenges your capacity
Let’s look at why.
Why do companies have such limited insight into the profitability of their customers and products?
Because as a company grows — adding product variants, customers, and markets — complexity increases.
Greater complexity increases the demand for efficiency, especially in the supply chain, which must now serve more markets, more customer types, and more product variants. When growth challenges capacity, it requires sharp prioritization in daily operations. And prioritization is exactly what drives both customer satisfaction and profitability.
Also read: Complexity kills growth in your business
Top-down prioritization is necessary
If the company operates without a shared strategic prioritization framework, decisions are left to chance and made locally across departments. Emotions toward individual customers start to drive decisions instead of facts.
For example:
Sales wants more products and variants on the shelves
Finance wants lower tied-up capital and better cash flow
… and in the middle, supply chain tries to balance service and cost
That’s why centralized, top-driven prioritization is necessary.
Segment customers and services
Most trading and manufacturing companies operate with a standard “one size fits all” approach, where all customers — large and small — are entitled to low prices, fast delivery, and high service.
One standard effectively means that some customers are overserviced while others are underserved.
Customer segmentation should be intuitive and based on profitability. We often see a simple split into “gold, silver, and bronze,” where gold customers are the few that drive profitable growth.
One standard can result in dissatisfied gold customers — and many small, unprofitable bronze customers.
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Price and service must go hand in hand if the company is to be profitable on each customer. Overall profitability can hide unprofitable products and customers — and mask significant improvement potential.
Why isn’t unprofitable growth detected in time?
It’s striking how many different interpretations of “reality” can exist when everyone has access to the same data.
Part of the explanation lies in traditional incentive structures, which create silo behavior and sub-optimization. The company’s overall goal is to serve customers efficiently and profitably. This implies that the economic value of each customer should justify pricing and service levels.
But it’s a dangerous assumption that employees understand these priorities throughout the value chain.
Identify your own blind spots
You can quickly test whether you and your colleagues agree on customer priorities.
Try this exercise:
Select five random customers
Rank them from 1–5, where 1 is the most important
Now check: Would your colleagues in procurement, sales, or production rank them the same way? Or differently?
If you don’t agree, there is likely improvement potential in your organization.
Create transparency and alignment
By segmenting customers based on data, the company creates a shared view and understanding of its products and customers. This understanding must translate into rules and practices end-to-end — from the customer and throughout the value chain.
Below is a simple example of three end-to-end service levels, where the customer base is divided into Basic, Standard, and Premium.
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Supply chain as a sales tool
Supply chain segmentation is largely about giving sales the tools to communicate different service levels and align expectations with customers.
Without these tools, companies risk closing small orders with high costs — contributing to unprofitable growth. Think about how often you’ve closed an order and promised something you couldn’t deliver — or that was costly to fulfill
Bring sales into your supply chain segmentation. Let them use it proactively in customer dialogue.
The result: more satisfied and more profitable customers.
Inspired?
Start here:
- Make sure the project is customer-focused — not just a cost-reduction initiative.
- Stay neutral across departments.
- Find analytical and communication tools that create transparency and shared understanding.
- Start small.
And remember:
“Perfection is not attainable, but if we chase perfection we can catch excellence.”
Need help getting started?
f you’d like support and want to learn more about how we can strengthen your business and create profitable growth, let’s have a no-obligation conversation.
You can also read more about our End-to-End Intelligence solution here.
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