In over thirty years of pioneering differentiated customer service, our Religence Executive Consultant and Sales and Operations alignment expert, Bob Sabath has seen how few customers it takes to build the profit for a company, and what a huge difference it can make to a company’s bottom line if it pays more attention to those most profitable customers.
The math here is that generally 20 percent of customers account for 80 percent of revenue and often more than 100 percent of profit. In financial services, the numbers are more dramatic. There, 20 percent of customers typically account for as much as 250 percent of profit. The huge discrepancy in financial services is caused by the incredible number of unprofitable customers these companies typically carry on their books.
This profit matrix analysis approaches profitability segmentation by correlating the most profitable customers with the most profitable products, in terms of total contribution to profit. Considering the total contribution to profit puts the focus where it should be, driving efforts toward the places that produce the best results.
Bob prefers to use a four-by-four matrix instead of the more commonly used three-by-three matrix of profitable, marginally profitable, and not profitable. We’ve adopted his approach in the Religence CRI Framework. We break the commonly looked at “profitable customers” into two parts, to distinguish the highly profitable franchise customers from the other profitable customers. There are usually only a small percentage of franchise customers.
Our profit matrix which starts a very productive conversation of “what is,” and stimulates a discussion with our clients of “what could be.” With the profit matrix we find the sweet spots to focus on for high-profit revenue, the duds to cull, and the hidden gems to grow.
We use existing data to immediately demonstrate opportunities to redirect efforts to grow profitable relationships and to grow margins on less successful relationships. We identify the poor performing products that are critical to key customers and find ways to assure that customers remain pleased with your service.
Segmenting customers this way greatly expands the options in setting business rules on how to serve them and in developing strategies for high-profit revenue potential. These clear business rules align Sales and Operations to deliver what is promised.
Customer Experience Wisdom: Promise what you can deliver profitably…so that everyone wins.
Questions: Is it hard to know what to do when a franchise customer wants to buy an unprofitable product?
Do you have horror stories of losing a franchise customer and then what it took to recover?
Want to avoid that pain? Then,