Who Are Your Best Customers?

Finance

In a typical business, 20 percent of the customers are unprofitable. Worse yet, says marketing veteran [Gloria Berthold] they cause 80 percent of your headaches.

If Berthold is right, you'd be wise to dump one of every five customers. (If you have a retail business, however, think twice before acting on that advice.) Berthold further posits that another 20 percent of customers account for 80 percent of profits.

It goes without saying, then, that you need to determine who your profitable customers are. You can probably guess their characteristics: He or she will value your product or service, accept your pricing structure, provide you with repeat business, discuss options before making a final decision, trust you to perform as promised, refer you to others, and pay bills on time.

In contrast, unprofitable customers always take issue with your prices, demand services you don't normally provide, are never happy with the services you do provide, and demand additional services but refuse to pay for them. They purchase less frequently, are not steady customers, and invariably are slow-or no-pays. They're always difficult, they're costly in terms of time and effort, and they often spread negative stories about your company. "They are not necessarily bad customers--just a bad match for your particular company," says Berthold. "They may work well with one of your competitors."

Furthermore, warns Berthold, high-volume clients are not always desirable. They can be unprofitable if they're too demanding; insist on special care, services and prices; and call for an inordinate amount of your staff's time and attention.

So, to determine your best clients, Berthold suggests you assemble a list of your high-volume customers and, from that, identify the top 20 percent of profitable customers. Then create a profile of your ideal customer based on location, industry, revenues, number of employees, sales strategies, buying approaches and even the role of the person you deal with (HR director, president, purchasing manager, buyer). "You want to capture each company's personality and method of doing business," she says.

Once you've compiled a profile of your most profitable customers, you can target comparable prospects when seeking new clients. "Your best prospects will look like your best clients," notes Berthold. Similarly, a profile of unprofitable customers can save you from wasting marketing dollars on the wrong prospects.

"Copyright © 201_ Entrepreneur.com. All rights reserved. Reprinted with permission from Entrepreneur.com."

Reading List

  1. The Hidden Goal Of The Smartest Investor

    What are your business goals for the year? If you’re like most owners, you have a profit goal you want to hit. You may also have a top line revenue number that’s important to you. While those goals are important, there is another objective that may have an even bigger payoff: building a sellable business.
  2. Six Power Ratios to Start Tracking Now

    If you’re planning to sell your company one day, here’s a list of six ratios to start tracking in your business now.
  3. Rich vs. Famous

    Have you set a goal for your company this year?
  4. How Your Age Shapes Your Exit Plan

    Your age has a big impact on your attitude toward your business, and your feelings about one day getting out of it.
  5. Acquire a Company Using a Leverage Buyout

    How can you buy a business with no cash of your own? It's actually simpler than you might think.
  6. How to Get Rich in 3 (Really Difficult) Steps

    Becoming wealthy may not be your primary goal, but if it is, there is a reasonably predictable way to get rich in society.
  7. Do you have a job or own a business?

    The ultimate test of your business can be found in a simple question: would someone want to buy your company?
  8. Subscribers Make Your Company More Valuable

    Why are Amazon, Apple and many of the most promising Silicon Valley start-ups and established company's leveraging a subscription business model?
  9. 10 Things That Make Your Business More Valuable

    Here are some insights on how to increase the value of your business.
  10. Four Ways To Protect Your Turf

    Big companies lock out their competitors by out-slugging them in capital infrastructure investments, but smaller businesses have to be smarter about how they defend their turf.