Customers are the lifeblood of your business. Any business, really.
And if you have lots of customers, that’s a good thing. Or many business owners allow themselves to get lulled into believing.
But that belief simply isn’t an accurate one for most businesses.
Studies have been done many times over the years. And the consistent pattern is that most customers really aren’t profitable. One example is a study done by Bain/Mindspring that clearly demonstrated that a full three-quarters of customers aren’t profitable.
(I’m waiting for that to sink in, and for you to let that percolate in your little old noodle)
Think about all the effort, activity, and hard costs that your business incurs to serve your current customer base. Now think about how it feels that 75% of those things are wasted on customers that don’t make you a red cent.
The answer is simple.
You need to rehabilitate your company so that way less of your customers are money losers.
That’s the easy part.
The hard part is figuring out, with a reasonable level of precision and certainty, which of your customers fall into the unprofitable bucket. Get this right, and you can make dramatic improvements in the profit and cash flow your company creates.
Get it wrong and things get worse than before.
So don’t rush out to start “axe-ing” your customers.
Take time to consider how you will do your analyses. Define, in advance, things such as how you will define your customers, what time period is relevant for you, how you will calculate profitability, and what the margin of error will be in your analysis.