Who are your best customers? Are they the ones who spend the most? Are they the people who you enjoy dealing with? You might think this is a subjective question, but there is a methodical way to identify the customers that are doing your company the most good. At a conference in Phoenix a while back, author Steve Wilkinghoff presented a very interesting process for this. The method outlined below isn't necessarily easy — especially if you have a large customer base — but if you want to truly maximize your profitability, it's essential to evaluate what you're selling to whom and how.
Customer Impact on Your Business
It's important to understand how your customers affect your business. Many business owners will say that every customer is just as important as any other, and all should be treated the same. While delivering great service to everyone is clearly a good idea, it isn't true that all customers are the same. Obviously anyone who spends money with your company can be considered a customer, and they affect your revenue every time they make a purchase. There are other ways in which a customer can have an impact on your business though, and they can vary greatly from one customer to another. For example, which products or services they buy can make a big difference. Also, how you acquired the customer, how they interact with your company, and the level of service they require after the sale can all make significant impacts.
If you want to increase you company's profitability and experience considerable growth in a short time, a great place to start is by evaluating your customers and making adjustments based on your findings. The numbers side of the evaluation is the easy part, but just as important is customer resonance (how positive or negative interactions with the customer generally are). The best way to determine this vital factor is to go to any and all staff members who interact with the customer and ask them to give each customer a rating from 1 to 10. Their score will often be determined by what some companies refer to as the PITA factor (we'll let you figure out what the acronym stands for), but it's important to keep this a positive exercise. You aren't trying to create an 'us vs. them' mentality within your organization.
This evaluation can be part objective and part subjective. The objective part is anything like the number of hours of service provided, number of calls into technical support, the length of any particular customer's sales cycle. The subjective part really comes down to how the customer treats employees. Â This type of evaluation is an easier task within a sales and service organization, but even in the most basic retail setting, your employees will know which customers they look forward to seeing, and which ones they dread.
Plotting for Success
Once you have an evaluation of each customer complete, and each has been assigned a resonance score of 1 to 10, it's time to create some graphs. Don't worry — no math is involved. Generally you want to create three separate graphs: one for profitability, one for cash flow, and one for ROI (Return On Investment). They'll look something like this:
Now that you have your customers plotted on your graph, you have a visual representation of how each group of customers is affecting your business.
In the top left quadrant, you have high profitability customers who are hard to deal with. These customers might just be grumpy or picky people, or they might be unhappy with your company. Either way, they are not likely to be loyal, and they are at risk. Depending on how low they are on the resonance scale, you might or might not want to work harder to keep their business.
The bottom left quadrant represents customers who are difficult to deal with and result in low profitability to boot. Some say drop these customers immediately. The problem with that is they are bringing in some revenue, and if you dump them, you'd better have a plan for replacing it, or your cash flow might suffer.
At the top right quadrant, you find the customers you wish you could clone. These are the folks who are helping your business not only by being profitable, but by requiring less maintenance and just being generally good for morale. This is the only quadrant where a higher cost of acquisition makes sense. Study these customers. Where did they come from? What's their demographic? Go out and find more of them!
Last, but certainly not least is the bottom right quadrant. This is an exciting group, because they represent great opportunity. They might not be buying the products or services you would want them to buy, but they are probably loyal and could be moved into the top right with the right kind of attention. If you want to make a significant impact on your bottom line, pay a lot of attention to these folks and find out what it will take to get them buying what you wish they'd buy.
Is this a lot of work? It can be. But it's well worth it. If you have a large customer base, take them a chunk at a time. As long as you're working on it and willing to make some adjustments in your methods where necessary, you'll see a bigger number in your bank account before you know it.