Get rid of a customer and boost your profit?
“How the hell can that work” you’re wondering?
“And this is coming from Brendan who’s always harping on about focussing on customers.”
No – I haven’t gone crazy.
And no – neither am I contradicting myself.
Let me illustrate with numbers.
Imagine you have annual revenue of €1,000,000. And imagine it’s producing a profit of €40,000. It’s a low margin – but it’s on the right side of zero!
But wait – let’s dig a little deeper into this scenario.
Imagine you have 2 customers providing you with that €1,000,000 – John spending €600,000 & Linda spending €400,000 with you. You’re making a profit on John of €50,000 and a loss on Linda of €10,000.
And imagine that Linda’s account is not the thin edge of a wedge you are confident of growing. So there’s no compelling commercial argument to continue to sell to Linda. Let’s look then at the numbers again – this time if you were to stop selling to Linda:
- Your total sales? €600,000.
- Your profit? €50,000.
You have reduced your turnover by 40% but boosted your profit by 25%!
So why is a non-accountant like me talking this language?
Well it’s simple. I want you to make more money.
Recently I was talking to an accountant. I asked him to estimate what percentage of businesses FAIL to break down their P&L by customers. And I specifically said I was talking about those businesses where the customers spend enough money to justify this type of analysis.
I was guessing a majority of businesses. He said a “large majority”.
Do you do such a breakdown?
If not – is this something worth your while looking at?
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