The shocking truth: Not all customers return expected profits. Many of your customers, up to 37% according to an internal survey, are ripping you off, stealing your hard-earned revenue, and actually hurting your ability to create value. To remove these damaging customers, first, understand who profitable customers are. Once you realize the core of customer profitability, you will unlock your ability to attract valuable customers who return profit quickly.
Each customer is unique
Customers are not all created equal, each of them is unique. A small group of clients generally drives a huge portion of sales for B2B companies. While additional customers generate cash flow, they can also result in your company losing money on each purchase.
Your most valuable customers are not always the largest ones. Your primary objective should be to increase sales with the most profitable customers, to identify ways to boost profitability with mid-level customers, and possibly to let unprofitable customers leave.
The trick is to begin by analyzing each customer. You have to comprehend their spending, the resources their operation consumes, and most crucially, the earnings you get from their purchases.
Not every customer is the same. Contrary to popular belief, it's not always the ones that bring in the most revenue who make the most money. Oftentimes, these huge corporations have such bargaining strength that they receive substantial discounts and favorable payment arrangements. However, when indirect expenses, such as those related to sales and support, are added, the return is typically negative.
Importance of profitable customers
When businesses attempt to attract customers, they bring their “A” game and deliver superior customer service. They appear to be tireless and dedicated, and their efforts frequently pay off in the form of new clients.
After this early impression, customers tend to stick around and continue the buying cycle. Still, businesses quickly lose focus on retaining profitable clients. Instead, they refocus on the next round of customer acquisition, repeating all the ‘pleasant’ things they did previously to acquire new customers.
The B2B company’s focus continues on these new customers. Still, before they realize it, the time has come for the first group of customers to repurchase. However, if the business does not do enough to retain profitable customers, would they return? A B2B company must provide compelling reasons to retain valuable customers.
Customer acquisition is critical, but…
New customer acquisition is a critical activity that every B2B organization must undertake in order to thrive and grow. However, businesses make a deadly error when they disregard profitable existing consumers.
Customers want businesses to value their business, to value their affiliation, and to treat them well throughout their relationship with the company. Feeling forgotten or receiving insufficient attention causes clients to lose trust in a firm, and they would much prefer to do business with the company that does pay them adequate attention.
Losing profitable customers is tremendously devastating to any B2B company, regardless of its size or height.
Recognizing profitable customers
Numerous statistics and studies demonstrate that obtaining new clients and bringing them to profitability is at least six times more expensive than retaining and keeping current ones.
Despite these empirical evidences, most businesses appear to place a higher premium on client acquisition and a far lower premium on retaining good customers. This is presumably because most businesses appear to be unaware about who their most profitable customers are and therefore incapable of retaining them long enough to convert them to loyal customers.
Businesses appear to struggle with the notion of lucrative clients – and it is most emphatically not the ones that spend the most money with them. These spenders may also be VIP customers who demand perfection and excessive service, putting a significant load on the business and its resources.
Even though these clients spend money with the company, they would also drain the business of the same amount, if not more.
How to identify profitable customers?
Targeting your most profitable customers is a popular strategy for raising your sales revenue. Not all customers are created equal.
Determining the profitability of your clients can assist you in growing every aspect of your business. These are not always the highest-spending clients — some of your highest-spending customers may not be lucrative, as they may have negotiated steep discounts or require additional customer service.
The trick is to discover these customers early and adjust your B2B sales strategy appropriately. Here are some important indicators of profitable customers.
1. More profitable than the average customer
Customer profitability is a metric that indicates how profitable a particular customer is. It compares the revenue generated by a particular client to the cost of getting or retaining that customer – in terms of time, resources, or other factors.
Customer profitability analysis calculation is very simple; profitable customers create more revenue than they cost you to serve. Effective interpretation of this analysis leads you focusing your marketing strategy to above-average customers.
2. Profitable customers lead you to the others
There is a simple customer profitability formula. Profitable customers are identifiable by 10 to 20 specific traits/characteristics. Use hindsight to describe those best of the best customers you’ve served over the last three years. What about these customers helps you identify others just like them that you aren’t already serving?
3. Return on marketing efforts
Profitable customers produce a greater return on marketing efforts. For every dollar of marketing or sales effort, these customers represent those who have the lowest cost per sale and the highest revenue per sale. Are you tracking customer value by source marketing campaign?
4. Easy to find
They are measurable and identifiable by association. Profitable customers are easy to find and usually hang out with others who could become your new customers too. Are your best customers members of certain trade groups? Do they read certain publications?
5. Low maintenance
There is no complaining, fewer returns, fewer headaches, projects finish on time, and after the sale, most follow-up is upselling. You’ll have an overall lower overhead with profitable customers.
6. Paying their bills on time
What does an uncollected dollar really cost you? When you lose fewer dollars to collection efforts, more revenue moves into your business to generate growth. Identify those customers who always pay on time.
7. New leads in your referral base
If your referral program isn’t tracking the source of new leads, then you may miss a powerful indicator of profitable customers. They want others to experience the value you provide them and will speak about the popularity of your company.
8. Purchase again and again
They also called repeat customer. They purchase again and again, even moving up your product lines to premium solutions. Do you give existing customers the opportunity to buy something else after the initial sale?
9. Profitable customers are willing buyers
You’ll find these customers are really benefiting from what you offer, so much so, they are passionate about the purchase decision. Did you know others who haven’t yet purchased from you have the same emotions you can tap into for sale?
Conclusion on profitable customers
Business to business companies who create profitable customers quickly also use a scoring system that identifies target buyers. Make these scores available to users of your customer relationship management (CRM) system as a market segmentation tool or selling guide.
Methods to identify valuable customers don’t stop here, there are at least 50 other ways, depending on the type of organization and structure of your solutions. Many of these ways don’t even require you to be good with numbers – you don’t have to be an accountant to make profit . What do you already know about your best customers?
The most important thing to take away from this message is to talk about customer profitability, talk with sales, marketing, and even accounting. If your sales team understands what makes profitable customers, it’s going to be easier to find and identify those valuable buyers in your industry.