Who Are Your BEST Customers?

I’ve always been fascinated by the number of business owners/operators who don’t know who their best customers are. 

Virtually everyone I’ve ever asked can tell me who they “think” their best customers are.  However, very few have actually analyzed their customer base enough to really know which customers are their BEST.

Often, when shown who their best clients are, these same people are shocked to see that those who they “thought” were their best were not even in the top 10.  The 80/20 rule is as applicable today as it’s ever been.

The rule states that 80% of our profit comes from 20% of our clients.  However, most people don’t ever look and, when they do, they don’t believe what they see.

The first step in determining who your best customers are is to determine what makes them one of the best.  Is it revenue, profitability, loyalty, paying their bills on time, or is it that you simply like them?

All of those categories can contribute to making a customer one of your best.  However, after spending 33 years in banking, I’ve determined that our best clients always have 2 things in common.  Meaningful recurring revenue and profitability.

The key words here are meaningful and recurring.  All of us in the waste industry have customers who are profitable and recurring.  However, it is critical that we review and analyze our clients based on revenue and profitability. 

Small businesses in all industries have a bad habit of not reviewing this information.  They show up daily, run their businesses, and hope to have a profit at the end of the day, week, month, and year.  Very few of them actually generate and review reports of their best clients on a regular basis.

One of the top performing companies I’ve ever worked with could be a case study in using data to manage your business.  They produce monthly reports showing their top 50 clients sorted by both revenue and profitability.  They also track sales and profitability by each of their product lines. 

They then create a rolling 12-month report and track all of this information.  They know who is joining the top 50 and, more importantly, who is dropping off.  They also know which of their product lines is most profitable and which ones, if any, are not profitable.

Managing their business by this data has allowed them to turn an in debt underperforming company into one that is now debt free and consistently earning a 33-35% net profit margin.

Sorting your clients by revenue, line of business, and profitability on a monthly, quarterly, and annual basis can transform the way you manage your business.  More importantly, identifying who your bottom performing clients are in revenue, line of business, and profitability will provide a target list for repricing, upselling, or eliminating from your client list.

We all have the same goal.  We want to build and run profitable sustainable businesses where our financial success justifies all of our hard work.

The first step in getting there is knowing, based upon quantifiable data, who your BEST customers are.

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