12 ways to get your head around which customers really are profitable. Run the numbers (or at least estimate very well) where your profit comes from. And where it doesn’t. Celebrate the customers who bring you success, and leverage your resources to delight them.
- Acquisition: How difficult or easy was it to get them as a customer? What did it cost you? How long did it take? What did you have to do to get them in terms of pricing, product/service configuration? What hoops did you have to go through?
- CLV (Customer Lifetime Value): Are they a long-term customer or part of the churn? What do you expect from them over their lifetime? Can you up sell or cross sell them? How easy will that be?
- RFM (Recency, Frequency, Monetary): When did they buy last? How often do they buy? How large a customer are they?
- Profit Contribution: How predictable and consistent are their needs? How much of what items or services will they buy? How good are their forecasts? How consistently do they keep to advance communicated plans, schedules and product specifications? What is their reputation regarding returns, credits, and refunds?
- Strategic: How open are they to new products? Are they likely to be interested in maintenance contracts? Do they fit with your strategy in terms of your product/service roadmap? Your business model roadmap?
- Criticality: How critical are you to their business? How critical are they to you? Are they a good fit for your brand, reputation? Will having them as a customer lead to more customers? Are they an anchor customer in a new segment or geography?
- Satisfaction: Do they refer you? Do they advocate for your business? Or are they a hassle to deal with? Is it easy to please them? Do they stretch your resources to serve them? Any special administrative support? How appropriate is their use of customer service and technical support? Do they want a relationship with you?
- Purchase Mix: What mix of SKUs does the customer buy? Are they buying the most profitable products or services? How many high, medium, or low profit SKUs do they buy? Do they require you to hold inventory?
- Consistency: Do they purchase every week, every day, or once in a while? Are their order patterns consistent and/or predictable? How much call center time is required? What’s the lead time: “I need it today” versus “the regular schedule?” Do they require special packing and handling? Do they buy using acceptable levels of automation? How reasonable are their quality testing processes? If returns apply, what are they—1%, 20%, or just what?
- Payment History: When do they pay—today, this month, 120 days, or what?
- Delivery: How hard is it to deliver to them? Are their locations easily served or not? Are they clustered with other customers or off the beaten track? Are their receiving hours reasonable? When your delivery people get there, what degree of special handling is required?
- Recurring Revenue: In the subscription business model, what investment is needed to speed adoption? How long will it take to anchor your product or service into your customers’ infrastructure and mission critical processes? What ongoing reinforcement is needed? Are they accustomed to this business model or not?
Customer Experience Wisdom: Profitable relationships are profitable for both the customer and the company.
Questions: Do you know which customers you should cultivate and grow?
Do you know who’s profitable and who’s not?
Want to align for greater profit?
Need help running your profit numbers? If so,