Trade-account economics: what a contractor account is worth

Step 1: start with gross profit, not revenue

The most common error is valuing accounts on sales. A $100,000-a-year account at 18% margin is worth less than a $60,000 account at 35%.

Gross profit per account per year = annual purchases × gross margin.

Example (placeholder numbers):

• Annual purchases: $48,000
• Gross margin: 24%
• Annual gross profit: $48,000 × 0.24 = $11,520

If you can, go one step further and subtract the direct cost to serve: delivery, credit losses, rep time and special pricing. That gives you contribution, which is closer to the real value. If those costs are hard to estimate, use gross profit and be a little conservative elsewhere.

Step 2: estimate how long accounts last

Pull a list of accounts opened in a given year, say three to five years ago. Count how many still buy regularly.

Example:

• Accounts opened in one year: 80
• Still active after 1 year: 60 (75%)
• Still active after 3 years: 40 (50%)
• Still active after 5 years: 28 (35%)

From that, a rough average active life might be around four years. You don't need precision. The point is to stop assuming every account lasts forever, or that they all vanish after a year.

Step 3: calculate lifetime value

Lifetime gross profit = annual gross profit × average active years.

Using the examples above: $11,520 × 4 = $46,080.

Two adjustments make this more realistic:

• Ramp-up. New accounts often start small. If first-year spending is half of a mature account's, reduce year one accordingly.
• Share of wallet. Most contractors use more than one supplier. If you hold 40% of an account's spending and could grow it to 60%, the upside is in growing share, not just opening the account.

Step 4: set a target acquisition cost

Now decide how much of that lifetime value you're willing to spend to win the account. There's no universal rule, but a useful approach is to cap acquisition cost at a share of first-year gross profit, so the money comes back within a year.

Example:

• First-year gross profit (with ramp-up): $5,760
• Target payback: 12 months
• Maximum acquisition cost: about $5,760

A more cautious supplier might cap it at half that. A supplier with very loyal accounts and long lifetimes might accept more.

Step 5: check a campaign against the target

Suppose a campaign costs $4,000 a month in management fees and ad spend combined.

Count only accounts that become active, meaning they place at least a second order within, say, 90 days. Credit applications that never buy are not accounts.

This is why our contractor acquisition campaigns report on active accounts, not inquiries alone.

Step 6: don't forget retention

Improving retention is often cheaper than winning new accounts. Using the example above:

• If 5-year survival rises from 35% to 45%, average account life might stretch from four years to closer to five.
• That adds roughly one year of gross profit per account, about $11,520, without spending anything on acquisition.

Retention improves through practical things: accurate stock, fast counter service, proactive communication about price changes, easy reordering, and useful technical content. Marketing contributes through branch listings, consent-based account updates and content that helps contractors do their job. Our branch local SEO and catalogue SEO work both support retention as much as acquisition.

For manufacturers: valuing installers

Manufacturers selling through distributors face a harder calculation, because the installer doesn't buy directly from them. One practical approach:

1. Estimate the average annual volume of your product an active installer specifies or installs.
2. Multiply by your gross profit per unit on sell-in to the distributor.
3. Estimate how long an installer stays loyal to your brand.

Example:

• Units per active installer per year: 25
• Gross profit per unit to the manufacturer: $180
• Annual value: $4,500
• Average loyalty: 5 years
• Lifetime value per installer: $22,500

That figure tells you what a dealer program, training night or co-op fund is worth per installer recruited or retained. Our dealer locator playbook covers how to keep installers active once they join.

Common mistakes

• Using revenue instead of gross profit. It inflates every number.
• Counting applications as accounts. Only active, reordering accounts count.
• Ignoring ramp-up. New accounts rarely spend at full rate in year one.
• Judging a campaign in its first month. Most supplier sales cycles need 60 to 90 days to show account quality.
• Treating all accounts the same. A commercial mechanical firm and a one-truck residential plumber have very different values. Segment if you can.

A simple worksheet

Fill in your own numbers:

1. Average annual purchases per active account: $____
2. Average gross margin: ____%
3. Annual gross profit per account (1 × 2): $____
4. Average active life in years: ____
5. Lifetime gross profit (3 × 4): $____
6. First-year gross profit after ramp-up: $____
7. Maximum acquisition cost you'll accept: $____
8. Current campaign cost per month: $____
9. Active accounts opened per month: ____
10. Actual cost per account (8 ÷ 9): $____

If line 10 is below line 7, the campaign is paying its way. If it isn't, change the targeting, the offer or the follow-up before adding budget.

Using this with us

We use this framework in every first consultation. Bring rough versions of lines 1, 2, 4 and 9, and we'll help you work out the rest. See our pricing for plan costs, then call, text or email.