Have you ever heard the saying “Any customer is a good customer” or that “The customer is always right” Did you know that such mantras have destroyed many a business?
Wouldn’t it be great if you could apply a set of rules to help you quantify what a customer is really worth to your business so you could determine which ones are worth your efforts, and which ones you would rather see become problem clients for your competitor?
Good news because there are three dimensions that you can apply to current and future customers to quantify a customer’s economic attractiveness to your business. Since all customers do not have the same contribution to your business success they should be rated based on their attractiveness using three fundamental measurements.
Importance – Some customers have high margins but provide overall low revenue, while some customers may have low margins but contribute lots in terms of revenue. In the end, they may have the same contribution to gross margin dollars. For this first measurement, rate each customer’s importance based on the number of gross margin dollars they contribute to the business.
Growth – Sometimes a customer is consistent in their orders but there is little opportunity for future growth, while other customers may not contribute much today but have the potential to blossom into big customers in the future. Rate each customer’s growth potential based on their growth in gross margin dollars.
Profitability – Some customers are simply more profitable than others. Rate each customer’s profitability based on their gross margin percentage, order size and collection period.
Using the three dimensions of customer attractiveness, you can determine which customers you should do everything in your power to keep, and which customers you might be better serviced by if they were your competition’s customers.
Do you periodically evaluate your customers’ attractiveness?
