Restructuring Your Customer Lists
An annual review of your customer list to rank them is a valuable management task. Knowing when you should eliminate customers from your base can be difficult but is important to ensure your business is operating efficiently and profitably. Some indicators to keep in mind when assessing your customers are:
- Negative attitude or low profit margins. To determine which customers you should be eliminating, you must prepare a gross margin analysis on sales for each customer. Any customers which result in low or negative gross margins should be eliminated. This is also an opportunity to inform your customers of price increases in order to maintain the gross profit margin you would like to have. Customers at this point can either agree to your price increase or find another supplier.
- Historically slow payers. These customers are costly from an administrative perspective and risky to collect.
- Requirements and expectations don’t align with your values and philosophies. If customers’ demands cannot be handled by your business or the customers are not in your targeted market , they should be eliminated.
- Difficult customers who add unnecessary stress on your business. Often they require additional time and costs in order to maintain the relationship, which may decrease your profit margin.