We have long been conditioned by society that the MORE we have and the BIGGER it is, the better. But when it comes to your list of clients, that isn’t necessarily the case. What I’m getting at is this; if you have a huge list of customers but only a proportion of those customers actually buy from you and have a positive effect on your profit, then not all of that list is worth having. In fact some customers are quite literally more trouble than they’re worth!
Jack Welch, who used to run General Electric, advocates cutting the lowest performing 10% to 20% of employees every year. And this approach makes good sense with your least profitable customers too.
So how do you go about altering the status quo? One way is to “prune” your list. It costs money to keep in touch with customers and if your efforts are not producing acceptable sales, then refocus your attention – on your ‘better’ customers. Not only will such a purge make room for new better quality customers, it will also make YOU stay on top with your marketing! And it will result in less work, but you’ll make the same amount of $$, or more.
How do you prune your customer list?
On way is to put your prices up! Whilst your low profit customers are likely to bail out, your “performing” customers will provide you with the same net income or more, for less work.
Increase your prices and sell more…
It makes many business owners cringe at the thought, but …. the chart below explains how many sales you could afford to lose and still retain the SAME profit.
The example below – 30% profit margin with a 10% price increase means you can afford to lose 25% of sales and still make the same profit. In my experience, no-one has ever lost 30% as is highlighted in the chart below.
Magnetic Marketing – “Increase Your Margin Calculator’
Percentage that sales can fall before gross profit reduces
Your Gross Profit—> 10 15 20 25 30 35 40 50 100
The truth is, it’s difficult to make a case for not increasing prices, when presented with this sort of concrete evidence that you should.