![](\"https:\/\/s3.amazonaws.com\/snd-store\/a\/77794371\/09_14_22_1170749170_bb_560x292.jpg\")
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\u201cWe love our customers!\u201d Many businesses proclaim this at the bottom of their invoices, in their marketing materials and even on the very walls of their physical locations.<\/p>\n
Obviously, every company needs a solid customer or client base to survive. But, to truly thrive, you need to evaluate which customers are reliably contributing to the bottom line and which ones are thinning it out. For those that fall into the latter group, it might be time to show them some tough\u00a0love.<\/p>\n
Tracking the data<\/strong><\/p>\n Your first step in evaluating customers is calculating, as precisely as possible, how much each one contributes to profitability.<\/p>\n This process will be simple if your sales system tracks individual customer purchases, and your accounting system has good cost accounting or decision support capabilities. Perhaps you have cost data for individual products, but not at the customer level. In this case, you might be able to manually \u201cmarry\u201d product-specific purchase history with cost data to determine individual customer value.<\/p>\n Even if you don\u2019t maintain cost data, you can sort the good from the bad by reviewing customer purchase volume and average sale price. Often, such data can be supplemented by general knowledge of the relative profitability of various products. Be sure that sales are net of any\u00a0returns.<\/p>\n Companies that don\u2019t track individual customers can still analyze customer segments or products. For instance, if the same distributor serves one group of customers, estimate the resources used to support that channel and their associated costs. Or ask individual departments to track employees\u2019 time by customer or product for a specific\u00a0period.<\/p>\n Be sure to include indirect costs. High marketing, handling, service or billing costs for individual customers or segments of customers can significantly affect their profitability even when they buy high-margin products or services. If you use activity-based costing, your company should already have this information.<\/p>\n Sorting them out<\/strong><\/p>\n After you\u2019ve assigned profitability levels to each customer or segment of customers, sort them into three\u00a0groups:<\/p>\n Members of the C\u00a0group are customers you likely can\u2019t afford to keep. They\u2019re often overly demanding or even abusive to employees. Some expect special treatment that costs you labor hours or actual dollars. Still others are consistently late paying invoices, which slows your cash flow. Whatever the case may be, they\u2019re firmly in the \u201cno longer profitable\u201d category.<\/p>\n Freeing yourself<\/strong><\/p>\n It might seem counterintuitive to intentionally let go of customers. However, by showing \u201cC-listers\u201d some tough love \u2014 and the door \u2014 you\u2019ll free up staff time and resources to better serve groups A and B, as well as to win over promising prospects. Contact us for help evaluating your customers from a cost vs. benefit perspective.<\/p>\n \u00a9 2022<\/em><\/p>\n <\/body> \u201cWe love our customers!\u201d Many businesses proclaim this at the bottom of their invoices, in their marketing materials and even on the very walls of their physical locations. Obviously, every company needs a solid customer or client base to survive. But, to truly thrive, you need to evaluate which customers are reliably contributing to the […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,14,10],"tags":[8,11,12],"class_list":["post-16345","post","type-post","status-publish","format-standard","hentry","category-articles","category-business","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16345","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=16345"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16345\/revisions"}],"predecessor-version":[{"id":16346,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16345\/revisions\/16346"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=16345"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=16345"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=16345"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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