Customer portfolio management is essential for ensuring strategic decisions that maximize your business’s profitability. Many companies still associate customer success with generated revenue, but this view can obscure critical improvement opportunities. After all, customers with high purchase volumes may be less profitable when the costs associated with serving them are analyzed.
A detailed analysis of service costs reveals that not all customers contribute positively to the company’s financial health. According to studies from Harvard Business Review, the distribution of customer profitability is as follows:
Identifying which customers demand more effort and resources enables more precise decisions regarding pricing and discounts. Companies that neglect this cost evaluation often face distortions. This happens because fixed costs are poorly distributed among the remaining customers, which can turn neutral customers into unprofitable ones.
It might seem like the best solution is to “fire” an unprofitable customer. However, without proper cost evaluation, the company could face an unexpected impact: fixed costs, previously allocated across all customers, would now be redistributed among the remaining ones. As a result, customers that were once neutral or profitable may begin generating losses, shifting the problem rather than solving it and harming profitability further.
Solutions such as our profitability calculator can help you identify each customer’s true situation and make more confident decisions.
Effective customer portfolio management is a key step in improving business results. It provides valuable insights into which customers to prioritize and which need specific strategies to become profitable. One efficient method for this analysis is activity-based costing (ABC), which allows costs from sales, marketing, and logistics to be directly assigned to the customers consuming them.
With this approach, decisions such as adjusting contracts, redefining discount policies, and even discontinuing unprofitable relationships (while understanding how this decision impacts the company’s finances) become more strategic. This ensures the organization maintains a balance between profitable customers and those that can be optimized, driving sustainable growth.
Investing in customer portfolio management is a way to transform how you view your business. By focusing more clearly on the 20% to 30% of highly profitable customers and employing specific strategies for others, you can enhance profitability and reduce inefficient costs.
Want to better understand how to improve customer management and boost your results? Fill out the form below and discover how we can help your company grow smarter and more profitably.
Request a demo bellow and know what MyABCM can do for your company.
If you are interested in MyABCM solutions and need more information, please send us a message.
