Finding the right customer

Finding the Right Customer

Is every customer precious – even the ones who give you grief?

Every customer is right as long as they’re the right customer. There are some customers that you really don’t need. You know the ones that I’m referring to – they give you grief by always complaining; they don’t pay on time or at all; they’re rude to your staff, and the list continues. There could be a whole host of reasons for you not wanting to serve them.

But how do you work out which customer is right for you?

Every business can benefit from a Customer Profitability Analysis (CPA) where you dissect customer types and separate the good from the bad. One business adviser who does this type of thing is John Petty.

Goodie or baddie?
Working out which customers are ‘good’ customers and which are ‘bad’ is relatively easy. While the obvious answer is that the latter tick all of the boxes above, there is a little more to this from a business perspective.

A good customer is one who orders large quantities of the products that you make money on and they don’t question you on price. In fact, good customers are prepared to pay a premium, they make large orders on a regular basis, they don’t argue or want discounts and they don’t complain. This is what we call a ‘low-maintenance’ customer. Don’t you wish all of your customers fell into this category?

Petty defines a bad customer as a customer who typically orders single quantities, who wants specials and discounts, and who wants to change the delivery arrangements. These are the same customers who demand (and use!) both pre and post sale technical support, and then (and this is the best part) they pay slowly or not at all.

Sound familiar?

You’ve got to keep them separated
As I said earlier, a Customer Profitability Analysis is your best way to work out which customer is which.

Petty says the reason for the analysis is to understand the activities you do for customers.
Most organisations manage themselves or stratify themselves by product and region, or business unit and region. This concept of Customer Profitability Analysis (CPA) means cutting and dicing your business by customers.

This means that you will need to understand (and be able to identify) what makes a good customer, what you actually do for a customer and how they relate to your business.

To do this, you need to understand the minimum cost of dealing with a particular customer or customer type. This can be difficult, particularly when the costs of dealing with a customer aren’t the operational costs upfront but the backhand costs, which are the cost of servicing, marketing and dispute resolution. This is when it becomes expensive.

The customer from hell is one who just keeps demanding – they are not worth dealing with. Petty says that companies who have undertaken a CPA know a good customer when they see one and often develop loyalty programs that lock in their good customers. The loyalty program is what keeps these customers coming back. Loyalty cards, frequent flyer arrangements and recognition programs are just some ways to give the customer an incentive to do business with you.

By Peter Switzer, published on 8/09/2008

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