Peter F. Drucker said that "the purpose of business is to create and keep a costumer." However, as an Organisation, what customers should we be creating and which ones should we keep?
A customer is a person or Organisation that has a commercial transaction with us which we call sale. Based on this, any person or Organisation with an interest in what another company offers is potentially a customer; however, we should make a distinction between “costumer” and “beneficial customer”. The second one must be evaluated to see if it provides some attractive benefit to the company.
Some costumers do not provide attractive enough benefits in order to keep them. Identify this is useful to make the decision to stop selling them but it is not a simple task because it is necessary to have reliable information that allows you to do so. Nevertheless, beyond creating and maintaining a customer through meeting a need, a company must be able to make a profit.
We could immediately think that a beneficial client is one that leaves a monetary benefit through the transactions we have with him, but I think it can span more than that. A beneficial client is the one that let us obtain a gain through the transactions and/or relationship that we get by being with him, and not only the transactions; although the transactions can leave a utility which would be included in the points to classify a costumer as a beneficial, we have to consider the following.
A company with annual revenues of 20 million dollars and within its client’s data base there is one that causes annual losses of half a million dollars. If we only evaluate transactions, this would be a non-beneficial client to the organisation because it is not making a profit and we should let it go. This is a valid conclusion if we only base our decision on that information but, would you make the same decision if it was a client with an excellent market position which allows to advertise your company and close other deals? Sometimes for strategic reasons it is appropriate to create, maintain and develop this sort of clients since they provide a different benefit or they could do so… some other times, no.
In this situation the gain is not obtained directly from the transactions but through the relationship with that costumer, which allows a good advertisement of the Company. Is this valuable enough for the Organisation? It must be analyzed in more detail.
The “simple” way to be able to make such decisions it is based on information and statistics, this is a decision that we cannot make on instinct. On the other hand, the creation of this information can lead you to conclude that the problem is not the costumer but the operation’s high costs and expenses, which do not allow you to get a better profit margin. In any of these situations it is essential to have the information that lets you evaluate costs, prices, sales and profitability of your clients.
Finally, decide whether to maintain a relationship with a client is discretion of the organisations goals and it’s not only tied to getting a direct profit for the transactions that you have with them. What are the expected benefits? Are all my clients profitable? Should I continue to keep them or are they aligned with my goals? These are some of the questions we must ask for this kind of decisions.