Part I: The 7 Habits of Highly Profitable Companies
How often do you find yourself saying or hearing "we don’t have the budget for that!"? In this seven part blog series, I'll share seven powerful habits and some uncommon solutions from my P.R.O.F.I+T Roadmap that will help you overcome that challenge.
Habit #1: Understand your 'who’s who' of customer profitability to generate powerful insights.
Most leaders can name their biggest customers, but can’t identify their most profitable; they’re rarely the same. There are complicated, time-consuming and expensive accounting approaches you can use to try to allocate costs down to the bottom line, but there’s also a much easier way.
Every company has about half a dozen true drivers of profitability that are qualitative and behavioural in nature. With that information, you can rank your biggest customers in less than an afternoon and take action on what you learn to help your other customers behave in ways that are more profitable for you.
Quick example: How often do end up chasing payment instead of getting paid upfront and in full? When you’re financing and chasing customers, it impacts your profitability. Your team may not pick this up from a spreadsheet-driven approach, but your receivables team can tell you 'who’s who' in minutes and develop an action plan to shift that behaviour.
I use a tool called the Customer Profitability Diamond to map a “who’s who” snapshot of:
1. Which customers are your biggest and most profitable – i.e. the ones keeping you in business that you must retain.
2. Which customers are large but only marginally profitable, so that you can develop strategies to ramp up their profitability instead of leaving money on the table.
3. Which customers are costing you more than they’re worth and dragging down your business. Research has shown that just restoring those customers to breakeven can double the profits in your business, so if you know you’re losing money on some customers, don’t overlook the opportunity to plug that profit leak. In five out of six cases, “firing the customer” is not the answer.
Case Study: To give you a sense of how powerful it is to map out your own ‘who’s who’, one of the teams I’m working with just found that out of 140 customers, there are only 17 that are highly profitable and keeping them in business. Now they have a plan to retain their “whales” and ramp up the rest of their must-keep customers.
It’s time to engage your team in developing your own customer profitability map - and make it a habit to do this annually. Whether you have a few large customers or thousands all over the world, you can use this concept to quickly set your annual customer strategies.
Anne C. Graham is a TEC Speaker and the #1 Best Selling Author of Profit in Plain Sight: The Proven Leadership Path to Unlock Profit, Passion and Growth. She shares The P.R.O.F.I+T Roadmap on international stages and with private clients to help business leaders massively shift from surviving to thriving.