Cultivate Customer Profitability

by Janet Boulter

Your organization would not exist without your customers - and yet most companies treat this valuable asset so poorly it is a wonder they still have business. The word "cultivate" implies - continuing to improve. A commitment to developing long-term, profitable customer relations - should always be a core value for your organization.

Studies show, people who have had a good experience with a business will become repeat customers 70% of the time. People who experienced a problem with a business, but the problem was handled to their satisfaction became repeat customers 90% of the time. Since your most profitable customer is a repeat customer, having policies and a corporate culture in place to keep your customers satisfied, will pay huge dividends.
When I ask business leaders who their most profitable customer is- the answer I get is almost always the same. . it is the customer who does the largest volume of business based on sales. While sales volume is a key indicator of revenue generation it does not reflect profitability. To ensure your company is profitable you have to make sure each division, each department and each customer is positively contributing to the profitability of the organization.

The first step is to conduct a CPA, which is a customer profitability analysis. While the metrics you chose will vary based on the product/services offered the metrics are very similar. Pick a set of criteria (5 to 10 measurable metrics) such as: volume of sales, length of relationship, pay history, allocation of company resources, standardization or customization, and future buying potential to name a few. Then you want to rank the customer in each of the criteria on a 1-5 scale. When complete total up the score- and it will be relatively easy to determine how profitable they are. The next step is to develop a customized customer action plan based on the CPA. For example if you have a customer that scored a 1-2 on the CPA - you action plan should detail how to keep this customer and expand your services and products. If the customer scored a 4-5, then you need to evaluate opportunities to move this customer into profitability or if that is not possible then you may need to "let them go." Conducting a semi-annual CPA for all customers is a valuable exercise that will not only increase your company's profitability it will help to define your strategic direction for the next 1-3 years.

If your company is considering expanding into new geographies or adding new product lines doing a CPA on prospective customers is a valuable exercise that should be a key component in your marketing and branding initiatives.

Reviewing how your sales team is compensated is also key to improving profitability. Many companies have a compensation system for their sales force which is based on commissions. If your sales team will be compensated based on the number of sales they close they will focus their time and efforts on working with clients whom they have an established relationship thereby driving up the chances for closing sales. Image having a sales person driving sales with a non- profitable customer and the impact that sale will have on the bottom line.

To make the most of the CPA you need to work with the sales team in completing the analysis as well as outlining a specific sales program targeted to meeting the needs of each of your customer groups.
Technology has done amazing things to improve the way business is conducted, but it also gives consumers and businesses opportunities to find competitive suppliers quickly and efficiently. You need to continually refine your business plan(s) to make sure you are working with customers to co-create solutions, continually stimulate innovation while increasing productivity and delivering solutions that work.

About Janet Boulter
Janet Boulter is an internationally recognized expert in business profitability. As a Business Advisor/Business Reconstructor with Center Consulting Group,a management firm specializing in providing integrated solutions for improved profitability, Janet works with clients in a variety of industries. For more information on consulting services, workshops or speaking engagements, please call (303) 368-9954 or e-mail: jboulter@centerconsultgroup.com

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