You have a customer who has been loyal and dependable for years. And that customer spends more with you than any other. So, obviously, that’s your best customer, right?
Not so fast.
Not so long ago, it’s true that, rightly or wrongly, a customer’s value was determined solely by the size of the checks they wrote. But that is changing, thanks to better access to customer analytics. At MDM’s recent Pricing and Profitability Summit for distributors, there was a lot of talk about the evolving definition of a good customer, and how we can now arrive at that definition.
It’s no longer just a matter of margins. To gain a truly comprehensive picture of a customer’s value, it’s imperative to look at every way that customer impacts the entire organization – at returns, at the time that customer requires, and at all the things you have to do and invest in supporting that customer.
For example, you must look what it costs to maintain the relationship:
- How many times does that customer call and ask for support?
- How often do you have to negotiate price?
- Do you have to carry inventory for them?
- Will they accept a replacement product in a pinch?
- Do they pay on time, or do you have to float them for a couple months?
- And, are they willing to buy the newer products that drive your business now, or are they determined to stick with what they’ve been buying for years?
Depending on the answers, all those things can chip away at that profit you thought that customer was bringing you.
So, it’s vital that once you have the answers, you use that information to determine how best to allocate resources to all your customers.
If you have data, not to mention history, that indicates a customer isn’t going to buy any new products, or any more than they have in the past, do you really want your outside sales team to invest time and resources on that customer? It may be that most of the relationship and the customer’s needs can be handled by inside support – which is less costly for you.
Conversely, a customer who isn’t spending that much, but is low-maintenance, and open to exploring new products, may be worth investing more time on.
These changes might require a culture shift within your organization. Acting on the data may trigger an organization-wide discussion about how best to manage customers. It may even cause a re-thinking of long-term goals and generate a bit of pushback from some sales team members. But if you have the data to back it up, it should be obvious to everyone in the organization that these changes can be powerful profit drivers.
It’s just a matter of knowing which customers truly are your best.
About the Author Robert Ruppert
Robert Ruppert brings more than two decades’ experience in implementation of ERP solutions and advanced analytics software to his role as ENAVATE regional sales manager. He combines technical and managerial expertise with advanced skills in strategic and tactical planning, contract negotiations, professional services resource allocation. And, he is proud of his track record of driving business growth and greater market share through sales initiatives.