Are Your Customer’s Profitable to You?

So, which simultaneous phone call would you take first?

Line One: A large potential customer.

Line Two: Your bank manager.

Line Three: A dissatisfied customer not happy with the service your customer is providing

Well you have heard that the “customer is king” – so do you instinctively take the call from the existing customer to soothe any issues and hopefully keep the revenue flow? Surely that is the perceived wisdom.

But should this be your best strategy?
What if the existing customer is small and unprofitable?
Could the large potential customer lead to greater success for your business?
Could you lose this opportunity while you sort out the issues surrounding a customer who may be causing financial problems?
This is an important management problem which basically boils down to the issue of are your marketing, sales and service efforts deployed to maximise your long-term profits?

But I believe that leaving sales and customer service staff to determine the right attention to give to customers is sloppy management and can result in lost sales, reduced margins and a high cost in customer service.

Businesses must not fall into the trap that all customers are equal rather they should see that they add different profits to the business and therefore warrant different levels of service. It is likely that without proper action taken, after the costs of customer servicing and credit control activity are calculated, a supplier may discover that between 30 and 50 per cent of customers are unprofitable! We also know that as customers grow bigger they demand more attention – so the issue facing a business is how it should it deploy it services to the needs of its profitable customers while it is having to respond to the needs of its unprofitable customers.

It is my belief that most of these risks and challenges are ignored by suppliers who are under-managing their customer base. This means they are not aware where their profit opportunities reside within their existing customer base and provide an average service at a higher cost. For smarter businesses, the aim should be to home in on those customers who are most profitable to them.

I want to start exploring with you how you can manage your customer base more effectively and unlock profit. I will be looking at-
• How can you build sales
• How to defend margins
• Minimise the cost of interacting with your customers
• How you can identify those customers who are profitable and those who are not
• How can you retain your customers and further develop their profitability
• Increase the purchasing frequency of customers

All this may mean changing the culture, organisation, remuneration and customer approach in your business. You may need to get rid of obsolete trade channels, junk out date pricing structure, or scrap systems which are inappropriate. This may be a challenge for the business and it employees, but the goal is to find, keep, and work with those customers who are the ones who add the profit to your business.