At least once a year review your customer list…
…and refer the 20% least profitable to your competitors.
How costly is the wrong customer? The cost is much greater than the lower margins you get from these customers. It’s not unusual your staff to spend 20% or more of their time trying to appease customers who really don’t value what you have to offer. So besides suffering lower profit margins, you’re spending an additional $20,000 out of every $100,000 of salary to try to please people who can’t be satisfied.
If your staff’s time were spent finding new ways to serve customers who value what you offer, you’d have the opportunity to increase both revenues and margins. These additional revenues and margins fall directly to the bottom line because they’re achieved without adding staff.
The profits you gain by ridding yourself of the wrong customers and replacing them with ideal customers can be used to attract and retain top talent. A McKinsey study, The War for Talent, showed that an “A” player costs 20% more than a “B” player, but produces two to three times more. That’s a heck of a return on investment. You can’t get this return if you’re wasting profit dollars on customers who don’t value what you offer.
It’s counter-intuitive, but referring business to your competitors can be a great way to strengthen your business and position your company for a brighter future.
Author – Dale Furtwengler