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Your Profitability is Determined by the Customers you Keep

Written by: Mike LeMaster

Article Overview: We've all heard the adage "not all business is good business". With that being said, we are all trying to keep cash flow robust and are challenged to turn any business away. So what can be done in situations where we know the business is not good for long-term profitability and will demand the continued commitment of precious resources?

Your Profitability is Determined by the Customers you Keep

We've all heard the adage "not all business is good business". With that being said, we are all trying to keep cash flow robust and are challenged to turn any business away. So what can be done in situations where we know the business is not good for long-term profitability and will demand the continued commitment of precious resources?

First, you need to understand the economic term "opportunity cost". This translates to having so many chairs at the table, and if you fill those chairs with unwanted guests, it won't be long before you are looking for a way to exit these undesirables. Or, you may just choose to leave the house! The same thing holds true for your business. Every customer consumes your company's valuable resources. And, proactively preventing unprofitable or marginally profitable customers from utilizing more than their fair share of these finite resources can be challenging to say the least.

These actionable ideas can help you be more selective in the customers you keep:

1. Define your ideal customer and establish criteria that are extremely objective. Publish these criteria internally and make sure everybody is aware of the ideal customer. Having established criteria will help your sales people and marketing people in their prospecting efforts.

2. Make sure that other departments such as Finance and Operations are involved early in evaluating new business along with your Sales department. Have a formal review process that is automated and doesn't slow up the selling cycle.

3. Review your current accounts and seek out clones of your most prized customers. This activity will also lend itself to defining criteria for seeking ideal customers.

4. Institute a review process that assesses the profitability of your accounts on a regular basis. You may find that the reality of the business is not as profitable as it was on paper prior to the actual work.

5. Finally, have an exit plan in place that fires customers in a way that preserves your integrity and profitability. Keeping unprofitable customers in place diminishes your chances of finding or servicing more profitable business.

Fill your table with guests that you would like to keep for a lifetime.

Remember...the customers you retain determine your profitability!

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Article Tags: actionable ideas, adage, cash flow, chairs, clones, current accounts, exit plan, fair share, finite resources, fires, good business, new business, opportunity cost, precious resources, proactively, profitable customers, term opportunity, term profitability, unwanted guests, valuable resources



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