Tuesday, August 26, 2008

CRM: Who Are Your Most Profitable Customers?

By knowing the answer to that question, you will discover how to multiply your profits. Let me ask you another question, if you knew who they were would spend most time with them? Now be honest, have you ever thought to really look at who your most profitable customers are, what similar characteristics they have, what made them be your best customers.

Because when you know that?it then becomes a lot easier to keep them profitable and happy and to ensure that you have new customers joining this elite group all the time Do the following and guarantee that your profits will increase exponentially.

Depending on the size of your customer base, you can decide on how many you wish to select. For this example, we will look at the top 5.

Without a proper CRM system, this is going to be quite difficult to calculate. If you had an automated system, this would be one of the Key Performance Indicators (KPI) that you would always be looking at. Let's start by looking at your biggest spenders.

You will need to calculate exactly how much profit you get from each of them. You will need to apply some simple accounting rules in relation to fixed and variable costs. To calculate your fixed costs, look at all the items that you spend money on every year. Things like; rent, light, telephone, salary costs, etc. When you have the total, then divide that by the amount of customers you have, and that is the amount you will assign as the fixed cost to each customer.

Now look at the variable costs. This will be made up of cost of goods sold to each. Items such as; material costs, variable manufacturing costs, sales commissions, lead generation costs, service costs, etc. Now apply this to each of your largest customers.

So how much does profit does each generate? Do the same with your 5 smallest customers and the 5 customers in the middle of the revenue ranking.

Have you noticed any interesting trends? Is the percentage of profit consistent? Are the largest customers still your most profitable ones? If like many businesses at this stage, you have not got any clear cut answers, you will need to perform this exercise for your whole base.

OK, let's assume for now that you have finally identified your most profitable customers. You will now need to look at what they have in common. Some suggested commonalities might be as follows:

They are all in the same industry
They have the same size
You have a specific sales or service representative looking after them
They are all in the same area
They buy a specific set of products

Whatever the answer you come up with, you now will have the secret to multiplying your profits. Do the following and guarantee that your profits will increase exponentially.

Spend the most time with them, love them to death

Cross sell to other customers, those products which your most profitable customers buy.

Focus your lead generation efforts on prospects with similar characteristics

Ask each one of them for two referrals, after all, since they are giving you so much profit, they must be happy!

There are many other things you can do to boost your profits with this sort of information, so my key tip to you, is ensure that you get some automated system in place which can answer these questions. What is more, you will guarantee that you repeat success and avoid costly mistakes.

This article was written by Peter Lawless, founder of 3R Sales and Marketing. For previous articles like this, visit 3R's Articles. Alternatively, subscribe to Success our free monthly Information Bulletin with sales and marketing articles.


No comments: