Do you know which of your customers are profitable for you and which are not?\u00a0 Yeah, if you look for them, you\u2019ll probably find a few (hopefully only a few) that really aren\u2019t contributing anything to your bottom line.\u00a0 So how do you identify them?\u00a0 And once you identify them, what can you do about them?\u00a0 For more on this, please read below.<\/p>\n
At least once a year, it\u2019s a good idea to audit your customer list looking for customers who are only marginally profitable or even unprofitable.\u00a0 Ideally, you would have a system in place to continuously monitor profitability by customer.\u00a0 If you know where your Gross Profit Margin needs to be on a companywide basis (as you should), then you\u2019re simply looking for those customers whose individual Gross Profit falls below the companywide level.\u00a0 If necessary to do this, ask your accounting firm for help.\u00a0 It will be worth the expense.\u00a0 Once you know which customers are unprofitable, you can either take steps to improve their profitability, or if that\u2019s not possible, politely suggest that they would be better off being someone else\u2019s customer.<\/p>\n
As part of this exercise, you should also look for customers who are just a bad fit for you.\u00a0 They are the 20% of your customers who cause you 80% of your customer service headaches.\u00a0 These are the ones who, no matter how hard you try, you just can\u2019t seem to satisfy.\u00a0 They can demand disproportionate amounts of attention, and they can cause stress and anxiety in your organization (read unhappy employees) . . . all things hard to quantify in dollars and cents, but very real cost factors nonetheless.\u00a0 Even if they are profitable customers, you have look at it from a cost\/benefit point of view.\u00a0 Are they really worth the stress they cause and would we be better off redirecting the time we invest in them to a more productive activity?\u201d<\/p>\n
It may sound like I\u2019m being very cavalier about how we treat our customers.\u00a0 I\u2019m not.\u00a0 Customers are pretty tough to come by these days, as we all know.\u00a0 I\u2019m not suggesting that we send a customer packing the instant we see that customer\u2019s profitability start to fall . . . there may be all sorts of valid reasons to hold onto that customer.\u00a0 But I am suggesting that we be aware of it, ask some questions about why it\u2019s happening, and make a conscious, informed decision.\u00a0 Likewise, I\u2019m not suggesting we should cut a customer loose the first time we have a customer service issue.\u00a0 But when some customers stand out as having chronic customer service issues, we have to look at whether or not the customer\u2019s expectations and ours are in sync, and if not, we have to question if we\u2019re really good long-term business partners.<\/p>\n
If you\u2019ve never done a customer audit as I\u2019ve described here, you should.\u00a0 You almost certainly have customers who are eroding your profitability and consuming more than their share of your resources.\u00a0 If you don\u2019t know how to find them or where to look, call me.\u00a0 We should talk.<\/p>\n","protected":false},"excerpt":{"rendered":"
Do you know which of your customers are profitable for you and which are not?\u00a0 Yeah, if you look for them, you\u2019ll probably find a few (hopefully only a few) that really aren\u2019t contributing anything to your bottom line.\u00a0 So how do you identify them?\u00a0 And once you identify them, what can you do about<\/p>\n