Researching your customer base can help improve your earnings and turn unprofitable customers into assets.
The prospect of losing customers is a scary proposition for any business in this economy. The recent recession and crawling recovery have made businesses extra protective of their customers — and no one wants to let a customer get away when there’s a chance they may not be able to find a replacement.
But a maximum customer load doesn’t always translate into maximum profits, says Bill Wade of Wade & Partners. Some customers simply don’t make money for companies, and Wade says those unprofitable customers can go a long way toward limiting a business’s yearly profits.
The solution is simple: make those customers profitable or let them go.
Improving a customer’s value to your organization isn’t an easy task. In the aftermarket, what makes a customer unprofitable — or profitable — depends on a number of factors.
According to Wade, these factors include product margins, order sizes and schedules, delivery rates and schedules, customer service requirements, service shop requirements and payment plans.
Since each customer’s requirements are different for each factor, Wade says a distributor must investigate its entire customer base to discover who costs the most and the least. Only then, he says, can a distributor start working to improve or remove its unprofitable customers.
