How to Identify Your Most Profitable Customers

How to Identify Your Most Profitable Customers

You’ve likely heard about the 80/20 rule — that 80 percent of your profits are driven by 20 percent of your customers.

With that in mind, it makes sense to focus on growing the most profitable customers. But first you have to know how to identify your golden group. Follow this formula to help you target those prized accounts:

A. First, analyze each of your customers and find out how much they spend. Calculate their spending during a specific period of time. You’ll know whether weekly, monthly or yearly works best for your business.

B. Now, subtract the actual cost of the goods or services provided or what you paid for them.

C. Next, figure out how to measure the expense (if any) of the extra services these customers require. You can use a fraction of your customer service representative’s hourly pay or assign a figure you create. Do these customers call often to check the status of their orders? Do they return more products than your average consumer?

Do they need extra administrative processes? Because of the extra time required, some of the accounts you consider important may actually be costing you more money than they’re worth.

To identify the most profitable ones, do the math: A minus (B plus C) equals your profit. The highest number makes you the most money.

Another factor to consider in this process is if your top clients act like a free sales force and refer other good customers to you. You’ll want to court these prized accounts.

How do you treat your most profitable customers? Ask them how you’re doing and what you can do better. Then implement their suggestions. It is imperative that you take care of them and allocate your company’s resources accordingly. Here are some other ideas on how to nurture them:

  • Build personal relationships with key decision-makers in your customer companies
  • Consider offering special terms like bulk discounts or something similar
  • Resolve their problems quickly
All content provided herein is for educational purposes only. It is provided “as is” and neither the author, publisher nor Triad Digital Media, LLC d/b/a Triad Retail Media warrant the accuracy of the information provided, nor do they assume any responsibility for errors, omissions or contrary interpretation of the subject matter herein.

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