No company can afford to serve customers who do not create some kind of value to the selling company. A Fall 2009 survey conducted by Business Danmark showed that 20% of the clients of every 4th company were bad customers. 85 pct. of salespersons answered positive on having customers, who do not create value!
Your relationship with any customer is valuable just to the extent that your mutual needs are met. The only way you can decide whether to keep a customer is to rigorously analyze what you're getting out of the relationship.
Value for seller could be in the form of profit but may also be caused by other factors. A low profit customer might create value if its purchases increase seller's purchasing power significantly thus making seller more price competitive and thereby allow for higher margins on other customers. A strong reference in an industry, where other companies that industry tend to follow its purchasing patterns might be valuable even it margins are low. A loss bearing customer could be valuable if its an innovator or early adaptor of technology provided it gives your company and staff new know-how both on its business and technology.
One way to deal with this is to be classify existing clients in four quadrants based upon costs to serve and the value created:
It is equally important to sort out bad sales opportunities before they become clients. This can be done using a similar approach to the one described above.
The Freedom2Act is an an easy-to-use cloud-based Sales Opportunity Management tool, which provides management with powerful overviews for making better decisions regarding the utilization of the sales force by focusing these on the most valuable and profitable sales opportunities and portfolio segments.
The tool helps progress sales through the sales funnel by enabling salespersons
to quickly keep their portfolio of opportunities up-to-date. The system makes
systematically uses of the salespersons knowledge of their portfolio. Easy to understand
graphics clearly shows where to focus and where to defocus. They clearly identify
growth potentials at existing clients; this might be from more of the same, or from
cross-sales of other products and services.