How do focus on the most profitable customers to maximize the business profits?
Climb to the peak with our insights for your business. No matter what your budget is, our concepts will hold true across all industries.
Any business must balance the customer and sales. Good customers can make your business stand out. So, attracting good customers can dramatically increase your profit and vice versa. Only a satisfied customer will be likely to return to do many businesses that help in building brands and growing profits.
The complete profit potential of every customer relationship must be the basic goal for any organization. Yes! “The customers are always right”. Profits from the customer are the lifeline to any business. From startups and small businesses to global corporations, the first attention must be paid to the target customers for improving sales efforts, marketing, pricing strategy, and expanding the market.
Who are the most profitable customers?
For every business, all the customers are not equal. For a large number of businesses, only a few percent of customers bring major profit to the company. Whereas, in actuality, while generating cash flow, remaining customers cause losses in your business on each of your transactions.
The highest paying customer need not be your best customer. Your business goal is to focus on sales with the most profitable customers, discover paths to increase profits on low-profit customers, and make your unprofitable customers shift their business elsewhere.
The first stage to reach your business’s profitable customers is to research your customers – how much amount they spend, the number of resources the business tied up, and most importantly, the amount of profit you make from their business.
Unique Customer Analysis
To develop your business profit and increase your business sales, start with customer analysis. When you are planning for customer analysis, to make the process quite simple and easy, begin with your small customers. Because it will make the process simple and can gather data easily.
For customer analysis, here are a few things to determine
- Total spending per specific time period: Choose the right time period that suits your business. It may be – weekly, monthly, or yearly figures.
- Offered cost of products or services: As a starter, and for now, eliminate your business fixed costs like office rent, utilities, and so on. Dive for given actual goods cost or your direct costs to deliver a service.
- Additional service cost: In most business, there is some number of customers who needs more sales support or administrative support than any other customers. So now, you to estimate the number of customers with the other “average” customer. Ask yourself,
- Do they call adequately to review their status?
- Does they have the tendency to return more numbers products?
- Do those clients need more administrative processes than other clients?
Gather answers to all these types of questions. Charge additionally, if the customers want to support than other usual customers. While calculating for all these queries, you might be in surprise about the found hidden cost, especially with your best customers.
Perform accurate calculations. Make sure not to add your overhead and fixed cost in the estimation. Grab the customer’s purchased gross revenue and subtract the gross margin (cost of product or service sold), now minus the specific extra amount to service that respective customer. Now what remains will be your profit margin for the respective customers in your business.
Another way to look at this is to ensure the distinction between profit and revenue is clear: Assume a customer Mr.X. He purchases your premium product in your business. And this premium product holds the highest business profit margin. Mr.X may purchase relatively less than other customers who purchase your low-margin items frequently in your company.
Now examine which customer gives you more profit, either X or another customer. After estimation, you will get a clear picture of, who is your best customer with the highest profit margin.
With the above method, analyze each customer in your business customers. At last, you will be on the right track with your customers and their profit margin.
Factors in other variables
There are theories that, businessers must focus on profitable customers to grow their businesses. But do you think it is that much easy to perform? Actually, it is difficult most of the time.
Here are some of the points that your business’s low profitable customers can give you some tangible benefits.
- These customers will sign in for long-term agreements and contracts
- They make purchases on various services or products
- These types of customers provide referrals
- They will improve the image of your business
Change Your Focus
As per the above-discussed stages, now you have estimated and filtered the most & least profitable customers for your business. Therefore, now it’s time to dive into the business method and strategy.
Initially, go for the least profitable customers. Ask yourself – Do I lose any sort of money from these customers? In general, most business holds some customers who gives a negative profit margin impact. If you are one of those companies, then you are likely to end up with the same. In this case, increase the product or service price to a profitable level, or modify the type of service you offer from your side to make a profit for those least profitable customers.
There are cases, where companies, need to identify paths to decrease the “additional services” cost (such as unwanted support calls for customers). If you do so, automatically the service for that customer is reduced which compensates to give your better profit.
Secondly, concentrate on your most profitable customers. Think of more ways to increase the amount for those customers like offering even better service. Do you have any opportunity to sell additional services or products to those customers? Do you want to make any modifications to the payment terms to encounter greater spending from the customer side? Especially, view in deep to analyze what can make you profit with these highly profitable customers. Also, make sure to apply some of the strategies that you performed for other average customers.
Your supreme goal for your business must be to find strategies to deal with your customers in all stages i.e., most profitable customers, average profitable customers, and least profitable customers. As a business owner, you need to work hard to transfer the least profitable customers to average profitable customers, and average profitable customers to highly profitable customers. Whatever may be your business, make sure to build the most profitable customers as that will be the blood of your business.
How to increase profit for your business?
The profits can be grown in 3 paths which are acquiring new customers, increasing the profitability of existing customers, and finally improving the value of customer relationships. Distinct customers shall be bound to interact with businesses in different ways. So, gaining new customers can drive some distinct means of revenue. Engaging the existing customers with the activities of higher returns will be another way. The final one will be maintaining the customer relationship for a longer period.
Are you familiar with making money out of profitable customers? The marketing teams call that as 80/20 rule or the Pareto Principle where 80% belongs to the company sales and the rest prime 20% goes to the customers/clients. Customer profitability in simple words can be the specific amount of profit acquired from each of the customer groups.
Things to Remember
Remember! Only dedicated customer service can offer consistency to any customer. In any business, their customer expectations will be fewer transfers with an instant resolution of problems. Any product/service must reliably ease off the customer’s work. To minimize risks of any product/service and maximize customer profitability we need to perform some analysis.
One among those analyses is customer profitability which is the measure of analyzing how profitable the customers are. There are formulas & Customer Lifetime Value CLV graphs for calculating and keeping track of this. Automating your accounts for analysis can be effective and efficient.
The Bottom Line
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