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I know that seems like a bizarre question particularly given the current economic conditions. However, it’s sometimes worthwhile looking at your customer base and prioritising your efforts on keeping the more profitable segments and letting go those which create less value for your business.

This can be an effective strategy if you’re looking to:

• increase your profit margins,
• cut your costs,
• or plan your marketing campaigns.

If you’re not convinced, ask yourself, do you know if all of your customers are actually profitable and worthwhile servicing? If so which segments offer the greatest margin and what are those margins? If you can’t answer these questions, maybe it’s time you took a deeper look at your customer base.

To calculate which parts of your business deliver the most profit, look at each product line, each service area, or each group of customers. Whichever you choose, evaluate the profitability of each and then assess their long term potential. This potential may not be based on hard numbers, but if you know your business you’ll have a feel for which product lines are facing strong market demand. For a service based business, you should have a feel for which clients are particularly happy with you and who have money to spend.

To help you define an appropriate strategy for each product area / client, consider plotting them on a chart such as this:

Roughly anything in the red area is worth servicing, anything in the other half is worth examining closely to evaluate whether or not to continue with. You might be surprised to find you are servicing some clients where the profit margin and long term prospects are both low. At which point, it’s worth asking if there is value in continuing to service the client. In a services businesses, these factors will typically coincide with a difficult client, which can have the added bonus of impacting employee moral too. This simply increases the case for closing the client account down.

The motivation for this post is that I have personally just been on the receiving end of such a strategy with an insurance company. It was time to renew my policy but the annual premium increased by over 60%. At first I was furious as there was no justification for such a price hike, but then I realised I must fall into the not so valuable box i.e. do not keep. I can only assume this is the case as no sane business would increase their prices by 60% plus and expect to keep hold of customers.

Anyway, it got me to thinking, what else could you do to encourage unprofitable customers to move away from your company? Well, aside from the obvious massive price hike, or simply cancelling their account, you could try… creative answers in the comments please.