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Your company, like others, has limited sales and marketing funds. That is why you must decide wisely where you will spend your time and available funds looking for and securing new business opportunities. You cannot afford to waste time and money on low margin products or services because you will miss targeting good leads.
Determine where to spend your time – rank customers. Who are your most profitable customers? Once you sort all of your current profitable accounts that have helped your company grow, note their attributes, because you want more like them. Use these descriptions in order to determine where to point your sales people.
Define best customer attributes for your business. You must define the size and types of customers that you want and make a plan that fits a strategy to target them. For your particular industry, establish criteria to rank current and potential customers. More sales dollars may not necessarily be what you desire nor the absolute largest clients.
If you are uncertain where to begin, just use A, B and C. Make the ranking process simple if you are unsure and start out using A, B and C. Your job is to maximize gross profit dollars so begin with a list of all your customers from high to low gross profit dollars. Begin analyzing at the top of the list (highest gross profit margin dollars). For now, ignore the gross profit percentage of net sales.
You want ‘A’ customers as a majority of your business. You are willing to spend most of your money on growing and attracting these profitable accounts. Why? They pay all of your fixed costs. They cover your capital expenditures necessary for your continued growth and they also make life easier with your bank. You can depend upon them and they order from you on a regular basis. When they complain, they are worth appeasing given their return on the sales dollar.
C customers are the least desirable. They are generally the smallest dollars, potentially costly for the return and can be a drain on your resources if you allow it. Do not waste time worrying about your rankings. You will see corrections as you proceed. Now assign rankings to all current customers.
Rank your customers by asking these questions:
- A or C Selection? From your YTD GP list (high to low $), first determine whether your customers are either C or A customers. You either really like their financial return or you do not. After you have completed the list into two groups, go back through the C list and determine which of those customers are either accounts with growth potential (B customers) or customers with low dollars but high gross profit margins with great potential. Ask which of these C customers are ordering large amounts, but hold smaller margins, great potential B customers someone in your organization needs to work on.
- Margin Analysis? What are the current margins this customer is yielding? If they are top of the list, you have an “A” ranked customer, possibly. Caution: great margins do not mean anything if the dollars are miniscule.
- Difficult to please? How much time is involved in making this customer happy? If no one can make them happy in your organization regardless of how hard you try, remind yourself of other market opportunities. When bogged down with a small bothersome account, raise the guy’s prices and begin researching new companies to target.
- Opportunity for growth? Is this company growing? Is it a small family owned business about the same size as it was ten years ago? Has it grown from one to eleven locations in the past decade? You might want hundreds of these very types of customers or you might decide that you sell to one distributor that services all of them at a much cheaper cost. The decision is different for every business. You must ask yourself the question in more than one way.
- Innovation driver? Has your customer helped drive you to innovate new products you would not have without his demands? Sometimes outside pressure is good for a company. A demanding customer may be very important for just this reason. He may provide the right impetus to keep your firm competitive. He may be worth keeping on regardless of his size simply because of his influence on your firm’s growth capabilities. Either thank him for this or consider that he might be the right choice for a friendly acquisition in the future. If neither, always keep ever-changing companies onboard simply because they keep you on your feet.
- Location advantage? If you have a customer that is across the street, pays well and has even a small potential, keep him. The elimination of freight costs and the ability to correct shipment orders within minutes allows your firm easy sales. You will be able to service this company more quickly and easily than nearly any other client since he can be seen out your window. Sales in the neighborhood eliminate a lot of headaches and speed up your growth. Give nearby neighbors an advantage that you would not for a firm 1,000 miles away.
