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Is it Bad to Like Some Customers More than Others?

I love my Dad.  Not only is he a wonderful and amazing human being, but he is also a really smart guy.  And, in a very familiar refrain from my teenage days, once again I have to acknowledge that he is right.

He responded to my blog last month about the law firm that had grown significantly by taking the time to find out what their customer truly needed and then providing it for them.

My Dad wrote, “The only caveat I have, is find out what your customer truly needs, and decide whether you can MOST PROFITABLY provide it to them. Sometimes, it may be more profitable to follow a different direction.  A niche market does not always maximize profits.”

One of my clients is practicing this mantra right now.  They have been in business for decades providing a much-needed service to individual beneficiaries of certain non-profit organizations.  These non-profits have provided the bulk of their revenue and income since their inception.  They truly need my client’s service and have been very loyal. Nevertheless, as a result in governmental funding decreases and the overall economic malaise, the non-profits have not been shy about continually squeezing the margins out of my client’s services.

This margin squeeze precipitated a re-evaluation of my client’s revenue streams.  Fortunately, through additional research and analysis, we uncovered a new niche of customers that needed my client’s services but are not using these non-profits to receive them.  Nevertheless, these customers are harder to locate and contact, require more effort to secure, and may not necessarily retain the same long-term commitment as the non-profits.

To increase profitability, we implemented a comprehensive margin analysis and realized that the profit contribution from these new customers, despite all of the obstacles cited above, was significantly higher than from those customers acquired from the non-profits.

In addition, the analysis also suggested that certain customers from the non-profits were more profitable than others.  And, by implementing a template of customer evaluation criteria, before only onboarding those customers with passing scores, we would also increase the direct margin contribution to the company from the newly approved non-profit customers.

As a result of this recently implemented judicious evaluation methodology and selective engagement process of onboarding these new customers from the non-profits, my client has enjoyed a significant boost to their overall margins.  The addition of the new niche of customers has also augmented the new margin increases.

Have you performed an in-depth margin analysis of every line of business in which your firm is engaged?  Often, you may find that as a result, your product, service, distribution or customer mix can be adjusted with significant benefit to your bottom line.

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