Choose your customers for growth

Do you assume that all your customers are profitable? Many small business owners rely on gut instinct and a seat-of-the-pants style. Sometimes it works incredibly well. But sometimes it is worth spending some time checking out your assumptions with some detailed analysis.

Lifetime value of your customers

Work out the lifetime value of your customers. How long does the average client buy from you and how much revenue do they generate?

Customers for profit

Not all customers are equal, and not all are profit generators. Start by analysing the profit contribution of each customer. Look at:

• The size of customers by average monthly purchases in £s
• The number of customers in each category as a percentage of total customers
• The % contribution to total sales of each group
• The % contribution total profit by each group.

This will help to identify the most profitable customers and can be used to ensure that the sales force is focussing on the most profitable segment. It also should ensure that the most profitable customers get the best service.

Next compare the different order sizes against the following costs:

• Transport and distribution
• Packing including transit packaging and labelling
• Invoicing
• Selling
• Bad payers
• Profit
• Cost of acquiring the customer for example, free surveys, presentations, proposals etc

Again this information should help you decide which are the customers you want and also the ones you don’t want.

For personal help to grow your business contact me on 01226 290288 or email Gareth@gapmanagement.co.uk

80/20

Remember the 80/20 rule and make sure everyone in the business knows:

• Which 20% of customers account for 80% of the turnover
• Which 20% of customers account for 80% of the profit
• Which 20% of the customers account for 80% of the bad payers
• Which 20% of the customers account for 80% of the problems with invoices or faulty goods etc

Pricing for profit

When was the last time you reviewed the discounts you give customers and do they really merit them?

Areas to look at include: Quantity discounts, settlement discount,

What about minimum order value? Is it enforced? How much does it cost to raise an invoice in your organisation? Could you change the packaging or standard quantities to increase the value of each order?

Review your pricing policy regularly to ensure you are keeping up with the market and inflation etc.

Think about the price message a 2.8% increase looks to have been carefully calculated and is better than a 3% round figure. £487 better than £500, £77.77 better than £79.99

Margin improvers or margin depressants?

What’s the gross profit for the business? 

Now what is the gross profit for each customer especially those in your top 10.

Any account below the company average is a depressant everything above is an improver.

What can you do to reduce the number of depressants?

In the field

Visit your customers

Decide to classify your customers as heavy, medium and lapsed based on their turnover and go out to meet some from each group.

For the heavy users ask:

What else could you do for them?
Check how they view your service, delivery times, lead times, out of stocks etc.

For the medium users ask:

Who else are they buying from and why?
What would you have to do to secure all their business?

Ask about sales calls, the frequency and usefulness.

For lapsed customers i.e. those who used to buy from you ask:

Why do they no longer purchase from you?

Who are they dealing with and why?

What would you have to do to secure their business?

Also try to establish what the customers think are your strengths and weaknesses and compare them with your staff’s views.

Knowledge is power

Ask the sales team to prepare a list of all their accounts.

Ask them to estimate the potential total spend for each customer and what share of this your company has.

Then ask them to estimate the shares of your top 2 competitors.

Who’s buying what?

And more importantly what are customers not buying from you that they could?

Over time all customers pigeon hole businesses and say things like “I did not know you did that or we always get that from”

Undertaking an analysis of the spend patterns of customers will help to identify additional opportunities for the sales team. If you have a large number of accounts or products start small and build up over time.

Establish what percentage of the company’ sales come from each product and then compare the performance of customers against this. For example if product ‘a’ accounts for 21% of the company’s sales and 6% of your top customer’s purchases from you then you should investigate why the difference and see what you can do to resolve it.

Comparison between types of customers is also useful. If one business type is buying a particular product from you are all the similar businesses?

Do you have a suggestion for a future article? Drop me an email with article in the subject line.

About GAP Management

GAP Management helps business owners and managers to focus their sales and marketing efforts to be more effective and to find win and keep customers, to grow their businesses and be successful whether they market in person, in print or on the web.

For personal help with marketing and sales to grow your business contact me on 01226 290288 or email Gareth@gapmanagement.co.uk