How many of your customers lose you money?
Unless you’re looking at this regularly you’ve probably got
Your business has a capacity for how much turnover it can handle without investing in more kit or more people. It’s massively important to make sure your customers deserve to be there – they have to pay their way.
You may have strategic reasons for some loss making customers – that’s OK but keep an eye on them.
Follow these 8 steps to get more profitable customers in your business:
- Apply the 80:20 rule – look at your biggest few customers that make up the majority of your turnover – these guys have to be profitable.
- Work out whether your customers are due a price / rate increase.
- Look at your small customers at the bottom of the list – when you add up how much it costs to service them, would you make more money if they weren’t there?
- Look at your high maintenance customers – are they worth it?
- Do you over- service your customers for what they pay you?
- How long do your biggest customers take to pay and work out the extra interest they’re costing you.
- Come up with a list of customers that lose you money, break even, and only make a small profit.
- Make a plan of what you are going to do about the problem customers, and set a deadline.
You’re going to have to do some digging to get to the profitability but I promise it’ll be worth it.
And what next?
- Make a list of marginal customers and speak to them. If you just explain you don’t make enough margin on their account they may surprise you.
- Make a hit list of customers that must go, then:
- Either be brave enough to sack them now to free up capacity to take on better customers
- Or replace them as soon as you can with a better customer
This will make a big difference to your business.