In many businesses there no real selection or filtering of customers.
The focus of the business is on attracting prospects through marketing, and then converting those prospects into customers through the sales process.
Good marketing will (of course) be targeted or aimed at a particular customer type or group (and if your marketing is not focused, it will be less effective) but that doesn’t mean you won’t have prospects that don’t meet the criteria for that target group.
Some of those “wrong” prospects will become customers.
Some of those customers may be the wrong kind of customer.
Some time ago, I ran a business that operated a support desk. We had some customers who were so troublesome and took so much time to support that we actually didn’t make any money from selling to them.
The Pareto rule will probably apply; 20% of your customers are either low profit or unprofitable.
Your customers will fall into one of the 4 categories:
Before you analyse your profitability by customer, you might want to draw up the profile of your ideal customer, the one you believe will fit in the top right quadrant.
In the top left quadrant, you may well find that you are doing business with an ideal customer, but not enough business to make it worth-while. Your focus should be on increasing the business you do with that customer.
In the lower left quadrant, you can change the way you handle the low profit customers. In the business I ran, we changed the support offering – limited the amount of free telephone support we offered, and backed that up with an extensive knowledge base to facilitate self support. You may need to change your pricing model to drive those customers away, or at least improve their profitability. We increased delivery charges on small orders for just this reason.
In the lower right quadrant, look to automate as much as possible. If you can automate dealings with a customer, from the order through to the cash, your costs of servicing the customer for that order will be very low. You will still need to review after sales support.
The customer in the top right quadrant are your stars, the ones you want to hang on to, the ones who are the most important to your business. You need a spread of customers here – Ideally no one customer should be worth more than 20% of your business.
Retaining your star customers is about building and sustaining a relationship with them. find ways to show your appreciation for their business, listen to their needs and wants and adjust your business to meet those needs.
Try to discover why your star customer buy from you, not the competition. We had one customer who bought from us because we were on his way home, but more seriously another showed great loyalty because one of our engineers met him at his customer’s site with the part he needed, enabling him to provide fantastic service to his customer.
Compare the profile of your real star customers to the profile you drew up before you started. Use that comparison (and the reasons why your customers buy from you) to inform and adjust your marketing.