5 Tips for Managing Profit-Draining Customers

Like many other business owners, you have probably encountered your fair share of profit-draining customers. You know the ones we are referring to. These clients often produce a high amount of gross revenue but generate so little profit that your margins are razor-thin. In many cases, these types of accounts end up costing your organization money.

While you may have considered severing your relationship with these profit-draining customers, there may be a chance to plug the leaks and maximize company profitability. To learn more, check out these 5 tips for managing profit-draining customers.

1.  Find the Leak

Many companies fail to take a deep dive into the data in order to find the exact cause of a profit leak. Oftentimes, our experts find that the solution could have easily been remedied by simply reviewing and listening to the data.

Once you have identified a leak, you can take steps to remedy the issue. This will allow you to maximize company profitability while nurturing an existing client relationship.

2.  Reduce Your Costs (and Theirs)

When addressing profit-draining customers, many organizations get focused on maximizing company profitability and reducing their own costs. However, it is equally important to help the client cut costs and improve their margins.

In order to reduce their costs, you must identify why they are causing a drain on your profits in the first place. Typically, below-market pricing is not the source of the issue.

Instead, the profit-draining customer likely has an excessive cost to serve. A high cost to serve can be linked to several factors, such as unusual order patterns or a poor product mix, but we’ll dive deeper into those issues below.

3.  Reassign Top Employees

After you have reviewed the data and identified the source of your profit drain, it is now time to reassess your relationships with these clients. Sometimes, simply assigning a new account manager to a profit-draining client can resolve the issue.

By pairing a potentially lucrative customer account with one of your top managers, you can often salvage the relationship. The high-performing account manager may be able to bring a new perspective to the situation and devise a creative way to maximize company profitability.

4.  Rework Your Product Mix and Order Patterns

Another proven way to maximize company profitability is to rework your product mix and order patterns. Poor order patterns are a common source of profit drains. This is an easily remedied issue in most instances.

Once you have identified the customers that are the source of the profit drain, closely review their order patterns. Are they ordering items too frequently or at irregular intervals? If so, work with them to establish less frequent, higher volume ordering patterns so that you can reduce supply chain costs.

As you’re assessing your current product mix, make sure that your sales team and account managers are aware of each item’s net profit. Create an internal catalog for these items.

This data will allow your account managers to provide each client with a customized product mix that can maximize company profitability.

5.  Don’t Be Afraid to Cut Ties

Unfortunately, not every customer relationship can be saved. Therefore, it is essential to be willing to cut ties when a partnership no longer benefits your organization.

Waiting too long to sever a relationship that has taken a negative turn can cost your company tens of thousands of dollars in revenue.

With that being said, it is important that you make an earnest effort to eliminate profit drains before you end a customer relationship. Prematurely terminating an account can have major consequences for both parties. It can even impact your overall brand reputation if it happens frequently.

Ready to Maximize Company Profitability with Zabel & Co?

While the tips outlined above are great ways to manage profit-draining customers, implementing these solutions can still be tough. Fortunately, Zabel & Co is here to help.

Our team of expert strategists and advisors can help you identify cost-saving opportunities, strengthen client relationships, and maximize company profitability.

To learn more, contact Zabel & Co today. We’ll identify the barriers that your business is facing. Then, we’ll make a comprehensive plan so that you can effectively overcome them.