Management
How Having Fewer Customers Can Increase Your Profits
At any point in time your business has limited resources with which to service your customers.
How you allocate those resources and who to will determine the types of customers you work with. This has impacts on the happiness of your team, the quality of work completed, the delight your customers experience, and ultimately — your profitability.
Most businesses accept every new customer that walks through the door. Their mindset is one of “more clients equals more sales equals more profit”. It’s not always the case. In fact, recent studies suggest that 20% of a business’s customers will often account for up to 225% of profit, and the other 80% eat 125% of profit!
One way to manage this is by creating Customer Selection Criteria. To reap the full rewards of such a plan, you need to formalise a process — i.e. define your criteria, then ensure it’s consistently implemented.
When formulating your selection criteria, you may consider things like:
- Does the work coming in align with your business’s future direction?
- Has the potential customer been referred by an existing customer whom you value?
- Will they be willing to listen to your advice?
- Does the potential customer work in an industry you’d like to gain access to?
- Will they be a good source of repeat and/or referral business?
- Does your business have the knowledge and resources available that the potential customer really needs?
The point of this article is not that you should necessarily turn people away, but that by being aware of the kinds of customers you enjoy working with, and who are most profitable, you’ll be better able to attract more of them to your business and deliver the level of service they expect.
