Project Description
A Current Customer Review is an analysis of current customers to get a clear understanding of which customers present the greatest long-term value for a business. It also identifies customers that may be negatively impacting the ability to grow. During a Current Customer Review we will evaluate three key areas:
- Financial Performance
- Primary Market / Industry
- Relationship Health & Ease of Doing Business
Why is it important?
Most businesses believe every customer is a good customer. Common conversations include:
- “Small customers fill in the gaps. they keep us busy when our big customers aren’t.”
- “A small customer today may grow into a big customer tomorrow!” (This may be true in some cases, but they rarely know which ones or how to identify those that have real potential.)
- “My salespeople are commission-based. They are reluctant to give up customers, period.”
The reality is, with almost every business 80% of their revenue and profit comes from the top 20% of their customers.
This pattern aligns clearly with The Pareto principle (also known as the 80/20 rule, the law of the vital few, or the principle of factor sparsity). The Pareto principle states that, for many events, roughly 80% of the effects come from 20% of the causes.
Small, low potential customers can have an enormous negative impact on a business. They suck up time, need hand holding, are often the squeaky wheel and distract from the important.
Know who your highest value customers are. Focus on them. The rest are just noise.
How do we do it?
Customer Value Ranking (CVR)
We will perform an 80/20 analysis on up to three years of sales history. From this analysis we will identify current high-performing customers, customers that have the potential to be high-performing customers and those customers that don’t add value to the business today or in the future.
Customer Concentration Index (CCI)
Based on our review of up to three years of sales history, we will calculate customer concentration (i.e. what % of total revenue does each customer represent). We will flag any potential issues for further review as we work to develop our overall plan for the future.
Market Matrix
Using our Customer Value Ranking, we’ll identify the primary markets for customers in the top quartile to begin painting a picture of the markets that truly drive the performance of the business.
Relationship Health & Ease of Doing Business
Using our Customer Value Ranking, we’ll facilitate a cross-functional review of relationship health and ease of doing business with customers in the top quartile of our CVR.