15 of 15

Write now Article Tools

The CFO is wringing his hands trying to figure out exactly why you are wanting to get rid of 20-30 revenue producing customers. It is difficult for him to understand that while removing the bottom 20-30 customers, it makes way for a top producer to be brought in and occupy the same costs and space. 80% of the revenue for the company comes from 5 customers. 20% of the revenue comes from 120 customers. The math is easy, lose 20-30 of the bottom producing customers and replace them with a top 1 or 2.
The process for replacing good customers with better customers and better customers with the best customers can ofttimes be painful to say the least. For many companies it is a total leap of faith to watch revenue leave while negotiations for revenue replacement and enhancement are still at the bargaining table. But waiting for bad or good customers to leave can cost the company the opportunity to land an account that can become a top 5 producer. In addition, waiting too long can create logistics nightmares for management.
In the fulfillment world, companies have to make this decision all the time as space requirements prohibit new customers from being added until old customers inventory is removed from the facility. Sometimes old customers have the same inventory sitting on a pallet for 4-6 months. Meaning that the only revenue coming in for that customer is the storage fees which hardly constitutes a viable customer. Replacing the slow to nil customers with customers who are turning their inventory every week makes fiscal sense and replaces a good customer with a best customer.
This in turn leads to increased revenue and allows companies to be more selective in determining who their "core" customers who are a "right fit" truly are.

Learn more about this author, David Maughan.
Click here to send author comments or questions.

Add your voice

Know something about How firing some customers can lead to greater revenue?
We want to hear your view. Write now!