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Free minibook · PDF, 23 pages
Find the Customers and Products Quietly Draining Your Margin, and Decide What to Fix, Reprice or Exit
Somewhere in your order book is a customer you are paying to keep. You pay in setups, rush freight, engineering hours, extra inventory and slow payment, while the invoice lands in revenue and gets applause. This free minibook puts every cost back against the customer and product that caused it, and then helps you act on what you see.
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By Todd Hagopian, who has led business transformations at Berkshire Hathaway, Illinois Tool Works and Whirlpool.
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Who it's for
Manufacturers, distributors and service firms with hundreds of accounts and hundreds or thousands of items, where revenue has grown and profit hasn't kept pace. By the end you'll have costed your customer-product combinations, sorted them into four groups, found the small set that earns most of your profit, and written a decision for every combination that loses money.
Not for you if you sell one product to a handful of customers, or your problem is total revenue converting to profit across the whole income statement. That's ATM or Money Pit?.
What you'll learn
- Averages Hide the Bleeding
- Cost the Work, Not the Units
- Build the Matrix
- Drill to the Vital Few
- Fix, Reprice or Exit
- Hold the Line
Plus a final action plan and a worksheet you can use the same week.
Key takeaways
- Margin Mirage: a healthy-looking average can hide customer-product combinations that lose money once you count what they consume.
- Cost the work, not the units: trace the activities each combination consumes, start from contribution, and charge each cost exactly once.
- The 80/20 Matrix of Profitability crosses your top customers with your top products to sort every combination into four quadrants.
- 80/20 Squared: rank again inside the top group and you usually find a far smaller set doing most of the work.
- Fix first, reprice where fixing isn't enough, and exit only when neither works, because exit is the one move you can't take back.
From the book
Somewhere in your order book is a customer you are paying to keep.
You don't write the check. You pay in setups, rush freight, engineering hours, extra inventory and slow payment. Most of those costs land in a shared bucket called overhead, where they belong to everyone and no one. The cost of slow payment doesn't land anywhere at all. The customer's invoice, meanwhile, lands in revenue, where it gets applause.
So the report says the account is worth $186,000 a year. The plant knows better. The plant has known for years.
This book is about closing that gap: putting every cost back against the customer and product that caused it, and then acting on what you see. Fixing first. Repricing where fixing isn't enough. Exiting only where both fail.
It takes nerve, because the customers you'll question are often the ones you're proudest of.
Todd Hagopian, Plug the Profit Leaks, from the prologue "The Customer You Pay to Keep"
Frequently asked questions
Our margins look fine. Where's the leak?
In the mix. A 30 percent average gross margin can be made of combinations earning 45 percent and combinations losing money once you count what they consume. The average tells you the total. It hides the pattern, and the pattern is where the money is.
Do I fire the customers who lose money?
Rarely first. Work the options in this order: fix the work so the combination costs less to serve; reprice where fixing isn't enough; exit only when neither will make the combination profitable. Exiting is the last move because it's the only one you can't take back.
How do I stop the leaks from coming back?
Change what gets measured and paid. If salespeople are paid on revenue, they will sell revenue, including the combinations you just repriced. If finance reports margin only by product line, the next mirage is already forming.
Related free minibooks
ATM or Money Pit?
Is your growth making money, or eating it? A ten-minute income-statement test.
Read more
Are You Underpricing?
Find where your pricing leaves profit behind, and test a fix before you roll it out.
Read more
Related reading on the blog
- Which Customers Actually Make You Money?
- How to Identify Which SKUs to Kill
- The 80/20 Rule: Simplify Your Portfolio
Go further
Stagnation Assassin: The Anti-Consultant Manifesto is about the bigger fight: the conditions that make companies decay from the inside, the team you need to fight them and the tools to keep a recovered business moving. It's available now. Todd's next book, 10-Minute Transformation, is out February 23, 2027.
The full library
Two ways to get it. Preorder now and it ships on release. Or buy on launch day, February 23, 2027, and get three free audiobooks (10-Minute Transformation, Stagnation Assassin and The Unfair Advantage) plus the full minibook library, on the honor system. Preorders don't include the launch-day bonuses.
About the author
Todd Hagopian, The Stagnation Assassin, is VP of Product Strategy and Marketing. He has led business transformations at Berkshire Hathaway, Illinois Tool Works, and Whirlpool Corporation, with $3B+ shareholder value across five turnarounds. He speaks to leadership teams on business transformation, turnarounds, and breaking stagnation.