Which Customers are Killing Your Profits? The Same Ones That Can Really Improve Them!

That's a good question. If you would like to increase sales and improve profitability dramatically at the same time, where would you do it? Naturally, at the customers that were numerous but unprofitable. But which ones?

The customers that are killing you are the same ones that can dramatically increase your profitability. They are the frequent customers that are giving you small orders. Take a look at this chart.

1. Measure your average order size for the company for all customers with $5,000 annual sales and up
2. Measure your average order frequency for all customers with $5,000 annual sales and up.
3. Measure each customer's order frequency and average order size against the averages. Mark them high or low. For example: a high order size (greater than the avg.) and high frequency gets a high-high.

4. How to rate the customers

High OS, High F = Best customers: give these special privileges: they are keepers

High OS, Low F = "Big Shot" customers: they need a frequency program

Low OS, High F = Frequent customers: give them incentives and promote a broader product mix to these based on the market segment to which they belong.


Low OS, Low F: = Unless you spot some big companies in here... relegate them to credit cards, these are tentative customers... jamming up your throughput and getting in the way of serving your best customers.

Frequent customers have the most potential for improvement

I've looked. It's amazing and there for the taking. You just need to do some MARKETING. You grow your sales and you grow your profits dramatically if you move frequent customers to BEST customers. Here's some reasons why this is great potential and so powerfully profitable:


1. Frequent customers typically find YOU. They wanted a brand you carried. They may have grown to over $10,000 a year but nobody made an effort to sell the whole product mix. Do it! It will pay off big when your average order size goes up against... the relatively fixed costs of servicing an order.

2. Frequent customers typically yield order sizes where the gross margin doesn't cover the transaction costs. Why? They found the brand they were looking for and don't buy much else. Your competitors are getting everything else.

Go ahead, figure it out. For a simple calculation, divide your operating costs by your number of orders. that's your average cost per transaction. It will stagger you when you compare this to the average gross profit per order of frequent customers. Then you will know what to do.