THE CUSTOMER IS ALWAYS RIGHT…PERHAPS, BUT ARE THEY RIGHT FOR YOU?
THE CUSTOMER IS ALWAYS RIGHT…PERHAPS, BUT ARE THEY RIGHT FOR YOU?
Targeting your ideal A-grade client is a must however understanding who are the B, C, and D graders. We aim to understand the cost of doing business with a customer and how profitable are they are to the business – Weigh them!
On startup many businesses take any customers they can get. As maturity develops you understand your business and certain customers provide more gross profit than others. This is referred to as the GP sweet spot and this is a great measure of your best customers. A-Grade traits include – profitable, fewer service requirements, accepting of conditions, pay on time, repeat orders, good volumes, and fans of your business. They are aligned and loyal.
Alternatively, there are high maintenance clients who are C & D grade. They are demanding, continually seek reduced prices, bad payers, never happy, and sporadic in reordering. Often your Gross Profit is a lot lower, and yes they shop on price and have no loyalty.
Steps:
*Understand the Break-Even Costs in your business.
*Assess all your clients and rate them against metrics :
Sales Value, Gross Profit, Frequency of transactions, Ordering cycles, the true cost of servicing them (billable and non-billable staff), Complaints, Returns, Credit standing.
*Rate each metric with a score from 1 to 5. Put weight on the metrics that are important to you. *Add the scores and get a score for each client.
*This analysis will be telling. Most businesses do not know their client’s profitability and cost. Compare the profitability of each client to Break Even values. What is it costing you to do business with them? Are you making money? If so How much or little?
*On a distribution curve work out what qualifies as A, B, C, & D Grade clients.
*Then plot your client scores on the distribution curve.
Visually you see who are your best clients. Can you work with and elevate the B and C clients, or perhaps adjust your offering to match them? D grade clients are typically not profitable so look to pass them to your competitors.
Unweighting your inefficient client base and focusing on you’re A-Grade clients can be liberating and profitable. Previous time wasted on servicing the D Grades can now be applied to you’re A and B grade clients, doubling your strengths…opportunity cost has now become opportunity profit.
Your business has improved its flow already.