You love all your customers equally. And that is killing your margins.
The Math Most CEOs Avoid
Sort your customers by profitability. Not revenue. Profitability. Account for the cost of service: sales time, support calls, custom engineering, expedited shipping, payment terms, returns.
You will find that your top 20% of customers generate roughly 80% of your profit. Your middle 60% are marginal. And your bottom 20% are almost certainly costing you money.
The Cost of Bad Customers
A customer who generates $500,000 in revenue but demands custom specs, extended payment terms, frequent support calls, and expedited shipping may cost you $480,000 to serve. Your net margin is $20,000 on half a million in revenue. Meanwhile, a $200,000 customer who orders standard products and pays in 30 days nets you $60,000.
Your sales team celebrates the big customer. Your P&L celebrates the small one.
What to Do
You have four options for unprofitable customers. Reprice them. If they are costing you money, raise prices to reflect the true cost of service. Standardize them. Move them to standard products and terms. Transition them. Help them find a supplier who is a better fit. Accept them. In rare cases, a strategic relationship justifies short-term losses.
The Conversation
This is the hardest conversation in business. Nobody wants to fire a customer. But every dollar you lose serving an unprofitable customer is a dollar you cannot invest in growing your profitable ones.
Run the analysis. Face the numbers. Act.
Book a strategy call at the8020institute.com to find the right program for your company.