GPI 338 – If your “C” customers do not yield the absolute highest gross profit margins, raise prices.

The absolute highest gross profit margins for your company should be earned on the C customers.  These are the smallest and least important accounts. The reason your company should target high margins from these customers is that they contribute low sales, require time, and most likely, do not hold a large future potential.  That can change, but for most of the C customers, they will never grow large enough to materially impact your bottom line.

Pay attention to C customers:  None of this indicates that you should not pay attention to C customers.  It merely describes the low impact on your bottom line that this level of customers have.  They will most likely not help your company grow without raising their minimum prices.

Reasons why very small accounts must yield the highest gross profit margins:

• C Customers yield small dollar amounts and normally will not grow as large as A and B customers. They may grow in the future and if that is the case, they will be categorized as B customers as they increase in their sales dollars. Don’t wait for C customers to grow. Go look for other B and A customers.
• C Customers require a fixed amount of time as do all customers. Given these costs for all accounts, you must set a minimum charge in dealing with all small accounts since you have set costs you are incurring each hour, shift, or day
• High margins percentages are desirable but are not worth the effort at very low sales dollars, given your company’s fixed charges per month.
• Revaluate and re-categorize all customers monthly or quarterly.