Do you know the profitability of your company’s customers? This is a crucial factor that could be directly impacting your financial results. Many companies focus solely on revenue but overlook customer profitability analysis, compromising their overall profitability.
Let’s explore how to identify unprofitable customers and implement strategies to improve your business results.
The customer with the highest revenue isn’t always the most profitable. A study by Harvard Business School found that 20% of customers are highly profitable, 70% are neutral, and 10% are extremely unprofitable.
This happens because many costs associated with serving customers, such as sales visits, personalized campaigns, and specific demands, are not properly measured. As a result, resources are consumed in sales that ultimately generate losses.
A recommended practice is to adjust the commission structure for salespeople, basing it not only on revenue but also on how profitable each customer is. An efficient model could include a split, such as 60% based on revenue and 40% on profit.
This approach encourages salespeople to prioritize more profitable deals, optimize visits, reduce unnecessary discounts, and increase negotiation efficiency.
The first step is to identify which customers are profitable and which are generating losses. From there, corrective actions can be implemented, such as renegotiating contracts or reevaluating service efforts. Companies that do this stand out, gain competitiveness, and increase their profit margins.
Understanding the return generated by your customers is essential for ensuring the sustainable growth of your business. Before offering discounts or prioritizing large orders, ask yourself: is this customer contributing to my company’s revenue or profit?
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