Tip #2: Who are your most profitable customers?
It’s surprising the number of businesses that cannot answer this question. A simple activity-based costing exercise, linked to the expected longevity of your client relationships, can produce rich results. You should aim to be able to populate this matrix:
This is a valuable exercise as you will probably find that:
(1)There are too few customers in the top right quadrant.
(2)The profits made by customers in the top right quadrant more than cover the losses in the bottom two.
(3)The profile of the most profitable may not follow accepted industry definitions.
Also, it’s a great way of prioritising recovery actions as different actions and questions apply to each quadrant:
Obviously, start with the top right hand box, then move to address the remaining three. Note how different actions are needed for each quadrant.
A simple, but effective way of thinking about recession recovery planning.
If you use distributors you can apply the same type of analysis too.