Increase the Bottom Line by Dropping Troublesome Customers

The Challenge

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!

Tip on How to Retain Valuable Customers

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:

  • Low cost/high value
    Passive/"Champions" are good trading partners. They give high value at low cost to the company.
    Product / service is crucial.
  • High cost/high value
    Savvy/"Demanders" pay top shelf price but are costly to serve.
  • Low cost/low value
    Cheap/"Acquaintances" are price-sensitive but have low service and quality requirements.
  • High cost/low value
    Aggressive/"Loosers" are the least attractive customers who leverage their buying power buying at low-margins

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.

Our Approach

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.

The Freedom2Act Cost-to-Serve against Value shows a circle for each sales opportunity/customer placed dependent upon its cost and value.
The size of each circle corresponds to the size of the contract value while he color indicates which salesperson.

Click on the figure to see a screen dump.