Grow, grow, grow. That was my mantra for years when I started my first business. If someone was interested in our services, we figured out a way to make it work. We’d adjust, modify or discount however we needed to add another client.
There Was Always Room to Stack One More on Top
But as every business owner that survives the startup phase knows, quality in the customers you serve is more important that the quantity of customers you serve.
Recognizing the problems I had with the pursuit of naked growth over profit was a huge turning point for me. Changing my growth addiction was a big step towards creating a business I could sell.
Tom Jager’s post Identify your Profitable Customers to Increase Revenues outlines one process you might go through to help maximizes the benefit your business receives from your most committed customers.
Jager encourages business owners to conduct an analysis of their customers.
The analysis should focus on what makes customers truly valuable to the business. Analyze your records and identify those customers who:
- Pay on time without any delays
- Buy high-margin products and services
- Place the largest orders
- Do not cancel orders
- Do not negotiate discounts and pay in full
- Do not require extensive after-sales service.
Taking the time to analyze your customers for the true benefit they provide your business will help you determine where to focus your time and energies if you’re serious about improving your Seller’s Discretionary Earnings. But don’t be shocked if your analysis points you towards different customers than you expect.
The customers who meet most of these requirements should become your business priorities. Do not be surprised if you find that your largest customers are among the least profitable and that some require such extensive after-sales service that it exceeds the value of the products they purchased.
Pursuit of growth is in the blood of many small business owners – and growth is good. But it can make us overlook the real, profit opportunities that exist right in front of us.