Who are your best customers?

There is a maxim that 80% of sales come from 20% of customers. Most companies go out of their way to coddle the top few customers. But do you judge your best customers by sales or profitability?

Clients I work with are often amazed at the results when I ask them to do profitability studies on their top tier customers. Often price breaks and other concessions are made to encourage more sales and to keep competitors at bay. The shock then comes when reality sets in and a client discovers that little or no profit is generated by these customers.

Keep track not only of sales by customer, but also profitability by customer. You should look at direct cost of servicing a customer as well as the indirect costs of supporting, responding to, and calling on the customers. If a customer is not profitable, re-negotiate with it, or fire it. Before taking on a new job or a new customer, do an analysis to make sure it will generate the income you need.