When Your #1 Customer Loses Profitability – Risk Management
When Your #1 Customer Loses Profitability
This article is the third of five by Firestorm Expert Council member Gary W. Patterson exploring the Five Key Areas where Risk may be lurking in your company, an excerpt from his book Stick Out Your Balance Sheet and Cough
Review Part 1 and take the Internal Exam Survey:
Part 3. Analyze Your Top Ten Customers’ Profits
Companies that accurately know the profitability of sales of their top 10 customers often fail to surmount the next hurdle:
How will your company be affected when the profitability of your top customer decreases?
Consider that buggy whip manufacturers were profitable customers for some businesses until automobiles became the standard. Rather than laugh at that comparison, review how the product or service your company provides might become the buggy whip of tomorrow for one or more of your current best customers.
Even if you know your 10 most profitable customers, you still can be caught unaware if you do not have some understanding of how changes in your customers’ business will impact your business.
A company that has no clue who its most profitable customers are cannot even begin to estimate the damaging impact on their own company when their top customers’ profits decline.
The takeaway lesson here is to understand that your top 10 customers will change over time, so it’s up to your management team to continuously analyze customer data to ensure you’re serving the right 10 best customers at all times and recognize that adjustments need to be made to those customer accounts that have fallen off the A list.