Do you know who your best customers are? Before I offer one way to answer that question, let’s consider what would define “best”. One way to think about best customers would be to measure how much they buy from you compared to other customers. Another more complex measurement would be to measure what your profit is from your best customers compared to the others. And an even more complex measurement would be to factor in all of your costs (like marketing, sales, support and admin costs.) That is probably a bit over the top for most businesses.
First Tesla Roadster in British Columbia
What about other factors like new markets a new customer can take your business to or the potential contacts they can offer? And how would you measure a customer like this couple who bought the first Tesla Roadster in BC? Make sure you catch the last line of the post. Hmm… wouldn’t you like this kind of passion in your customer base?
But back to measuring your best customers.
It strikes me that a good midpoint of simplicity and effectivity is to measure the profitability of your customers. To do that you’ll need to know what you sell them and what it costs to deliver the products and services to them. When you compare the revenue generated to the costs incurred you have the profit you generate.
- Sales minus Cost of Sales = Gross Profit
By pulling the sales transactions from your accounting system along with the associated costs you can calculate the profit over time for all of your customers. Then sort them in descending order and see if they fall into the traditional 80/20 rule. Is your business similar to many where 20% of your customers generate 80% of your profit?
That might generate additional questions like:
- Who is the salesperson responsible for interacting with the customers?
- What type of customer are they?
- What region of the country are they located?
- What is the trend of their buying habits? Are they buying more or less?
- What products are they no longer buying from you?
With a little work and the right application, you can easily start to address these and other questions on a regular basis so that you can focus your management efforts on your best customers and working with the next tier to move them into the “Best Customer” category as well. Then maybe you can order your own Tesla Roadster.
You bring up some great points Art. Knowing your numbers gives you data so you know where to focus resources to improve the health/ overall profitability of the business. One business owner shared with me, “I fire 10% of my clients every year.” Sounds hard-hearted, but why try to meet the needs of customers that aren’t a good fit and aren’t profitable for the business? Also your question about who is the salesperson is worth investigating. Does the salesperson have the right personality, drive, attitude and skills to best meet the customers’ needs and realize the market potential? Once you get the data, it always pay to ask more of those “why” questions!
Thanks Julia. Interesting approach used by owner you know to clear out 10% of the low performing clients. I assume that step should be implemented after careful review of the relationships.
Other “best customer” criteria would include your ability to.extend your business relationships into other parts of the company, their interest in including you when they have strategic discussions that give you an inside opportunity to define new business specs that best fit your competency, and of course their willingness to use their name as a referemce
Thanks for your thoughts Mike. I have also found that customers can help spark ideas for new products and services.