Published by Annmarie N.
In any business it is important to know your customers. How well do you think you know your customers? Do you know which customers take up the most time? Do you know which customers are the most profitable? To figure out the answer to these questions, you need to apply the “80-20 rule” this rule simply means that 80% of your profits come from 20% of your customers.
Once you identify your top 20% of customers, you can focus on making sure this group of customers remains satisfied. By understanding what makes this group more profitable, you can work on bringing more of your customers into this same category. Sometimes it only takes a follow-up phone call to see how satisfied they are or even just a little extra attention the next time they visit your place of business or make an online purchase.
Keep in mind that it is not always profits that make a good customer. There are many other factors that are just as important, such as the volume of orders, the total amount of time taken for customers to place orders, and the terms of payment. Do customers pay as soon as possible or do they hold payment for 90 days? How strong and reliable do consumers view your brand in the marketplace? Do you enjoy doing business with customers? Conduct a survey among the client services staff, sales team, and production team to determine who are the easy customers and who are the less-than-favorable ones. It is important to know your top customers.
Another way to look at the 80-20 rule, as it applies to your business, is that perhaps 80% of your revenue comes from 20% of your customers. Review and analyze your revenue-by-customer report to determine if this aspect of the rule applies to your business. If it is the case, the top 20% should have special customer privileges. Determine the amount of complaints coming in and see what percent of complaints come from the 80%. Then identify the re-occurring problem and the specific associated customers. You need to come up with a way to effectively handle the 20% of customers that are driving 80% of the revenues.
Ultimately, understanding your customers will improve your business profits. If you need assistance with reviewing customer profitability, or our CFO/Controller services for small businesses, feel free to contact us at info@urbanaccountingllc.com.
