Analyze your customers for a better business

If your business is like most, you put a lot of effort into attracting new customers. After all, that’s an essential part of growing the business. But sometimes it’s more productive to step back and review your existing customers, and perhaps even get rid of a few.

You might be surprised at what you find if you take the time to analyze your customers. Start by listing customers in order of sales. Then make your best estimate about the cost of those sales. For example, you might give volume price breaks to your biggest customers that make them less profitable than smaller customers. But don’t just look at the cost of sales. Ask your sales staff, your customer service staff, and your accounting staff to assign a simple grade to your customers (e.g., A, B, C, D, or F). This will give you a relative measure of how much time and effort each customer requires.

Once you have profitability and customer care information, you can begin to rank your customers in groups from best to worst. The “best” are easy. They’re the customers you should make a special effort to appreciate and retain.

You have several options for the “worst” group. With some customers, you might want to change your pricing structure to charge them for the excessive costs and attention they require. With others, you might want to sit down and address specific problem areas. Sometimes just making customers aware of problems can produce positive joint solutions.

In some cases, the only solution is to part ways. Do this gracefully, without creating unnecessary ill will that can come back to haunt you. If possible, find a plausible business reason to support your action. But if necessary, be blunt and tell the customer that you’re cutting back to provide better service to your top customers. Suggest alternative suppliers they might contact to fill their needs.

Eliminating customers may be counter-intuitive, but it can work wonders for your bottom line and your staff’s morale. Call us if you’d like assistance with the financial analysis of your customers.

About Brenda J. McGivern, CPA

Brenda McGivern started her own certified public accounting and management consulting firm in October 2001. The full service CPA firm provides tax and accounting solutions to meet the needs of today's small business and individual. Brenda McGivern has become a trusted advisor and valuable resource her clients rely on for timely, accurate assistance when they need it. Before starting the firm, she worked as an accountant for three years at a local firm and prior to that five years at a large international CPA firm in Boston. She has performed the following tax services: federal, state and local tax planning, international tax planning, estate and succession planning, mergers and acquisitions, capital retention and IRS representation. She has also coordinated assurance engagements, such as financial statement audits, reviews and compilations from the planning phase through the reporting phase. She has prepared and reviewed regulatory filings for numerous regulatory agencies including the Security and Exchange Commission. Prior to these positions she was selected from over 2,000 candidates into an eight-person intensive financial management program at an international technology company. The program consisted of graduate level classroom study and two six-month rotational assignments in financial operations. She graduated cum laude from the University of Massachusetts at Amherst and holds a Bachelors Degree in Business Administration with a concentration in accounting. McGivern also holds a license in Massachusetts as a Certified Public Accountant and is a member of the American Society of Certified Public Accountants and the Massachusetts Society of Certified Public Accountants. She currently sits is a board member at two local organizations. She resides in Stoughton, Massachusetts with her husband Brian, and their sons Sean, Ryan and Conor.
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