Customer profitability

Are you interested in to know who are you best customers? Do you sales persons focus to make appointments with those customers they can go every day or with those who are worth of money for your business? In past when the first priority the sales persons were to have 4 or 5 visits in a day it leaded persons easily to meet secondarily unprofitability customers. This was common in early 1990’s but unfortunately still reign in many companies. There must be free money in those companies who are not evaluating importance of their customer value. Another challenge is that maybe CRM-systems and sales analyses tools are not supporting enough to do any profitable analyses. It’s a pity that there are still a lot of employees not to know how to use these systems or they are hoping that their supervisor does all analyses for them.

It has been said that majority of the customers are unprofitable for the companies. I agree that statement and one of the best models to observe customer profitability is so called Pareto’s Principles. The 80/20 Rule means that in anything a few (20 percent) are vital and many (80 percent) are trivial. For example 80 percent of our sales in 2012 come from 20 percent of our customers. I’m not sure what has been the share of profit with those 20 percent of customers. This is only model we are using today in our B-to B- business. Everything is based on sales in volumes, euros and the average profit generated to us. This should be done every quarter at least.

Next step to improve customer profitability analysis is that all the costs associated with the sales and customer service efforts directed at the customers should be taken into account. This would include both direct and indirect costs, such as salaries, cost of promotional materials, travel cost and marketing and delivery costs. Doing this occasionally would reveal you who are customers to focus on. This would be the task to be done by supervisors or business intelligence. There should also be some kind of exit plan in place for those unprofitability customers. We are still too sensitive to stop visiting on casual shopper. We should also do analysis for those customers new to us or customers not buying or using our services any longer. To collect that information might help us to develop better and more efficient promotional message.

One of the most important analyses we should not forget is to follow who are our competitors. What are they doing, what are their product selections, what are customers thinking about them etc. Very simple way to get that information is to roll-out customer satisfaction surveys. This should be done every another year at least. All kind of loyalty programs might be useful to have also in B-to B –business. If business environment would allow that kind of programs we should try to use them. Proper CRM-systems are still missing many companies. We should put more focus to implement system where we can record all calls, do segmentations by site level and by individual person level. This system should also include sales data, all bid information etc. to really help organizations to develop their customer earning capacity.

If doing even majority of actions I have described ahead would help everybody to get better understanding about customer profitability and develop it. If you have anything else in your mind please let me know that. I would really appreciate your feedback when trying to implement new ways to improve customer profitability.

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One Response to Customer profitability

  1. osmopuhakainen says:

    Unfortunately it’s still true that many companies are focusing their sales efforts on the amount of contacts instead of the value of contacts. Some companies are even going the wrong way trying to get more out of their salesforce by adding more sales visits demand on their agenda.

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