Sunday, May 16, 2010

Fire Your Customers

Increasing sales may not be good for your business. Are you crazy, you say? Not at all. We often are concerned that we have more customers than ever before but aren't making more money. There is a very easy answer. The solution can be found in an analysis of your customers. There are a certain level of customers or clients that make you money; about 20% and a group of about 10% that are costing you money. These are the one time buyer or the small quantity user. Costs that are amortized across the whole sales process decrease per unit when tied to larger quantities. That means that the 80% of small customers are costing you more than you are making.
You need to analyze your customers to see which group they
each belong to.It is important that you direct your best marketing efforts at the 20% of customers who are improving your bottom line. Your middle group probably tends to be very loyal so special attention is not necessary. The bottom group is the customers that you fire. You can easily reduce your number of un-profitable clients by increasing minimum orders or convenience fees. In time your customer list will contain fewer names, but they will be the most valuable.