As an experienced CFO, I know that some customers bring a lot more to your bottom line than others – and your biggest customers are often the least profitable. Which is why one of the things I do for my clients is to take a hard look at their customer base, analyze it and recommend ways to make it stronger. Here’s how:
1. Analyze margins by customer. How labor intensive is it to fill this customer’s orders? How long does this customer typically take to pay? What is the average mark-up per order? Say you’re in the fuel industry, and your truck can carry 8,000 gallons of fuel. Each delivery to the customer site incurs time and travel expenses. Your delivery cost per gallon will be much lower for the gas station that typically takes the full 8,000 gallons of fuel with each delivery than for the trucking company in the same neighborhood that takes only 2,000 gallons of fuel with each delivery. If the gas station usually pays their bill within seven days while the trucking company takes longer to pay, your margins will go down that much more.
2. Up-sell customers with higher-margin products. For customers that want to buy a particular product as cheaply as possible, see if you can also add your higher-margin products to their orders, too.
3. Consider firing your largest volume customer. Quite often your largest volume customer can be the one with the lowest margins. They can be the most labor-intensive to serve and the slowest to pay you. Plus, they often create the most stress in your office, because they have the most “fire drills.” Take a hard look at whether or not this customer’s business is worth it. Maybe it is. But maybe it’s not.
4. Reduce customer-caused fire drills. Before you fire a customer, though, look at ways that you can be more successful with them. For example, what if your major customer often calls demanding that you drop everything to send a truck out because they just noticed they can’t wait for their regularly-scheduled fuel delivery? Could you put an electronic monitor on their tank so that you can proactively serve their needs? Could you have the sales person win over the person who’s supposed to check the tanks? Could your CFO explain to their management that in exchange for great pricing, they need to reduce these “emergencies”?
Need help strengthening your customer base? Give me a call! I’m here for you.