Just Blame it on the Customer

What’s currently vogue in the business world is to blame the results of corporate incompetence, the economy and other external or internal issues on the customer. Many companies are initiating “customer profitability” studies to determine the evil ones and to then target and exorcise them forever, ridding the company of its unprofitable business and making a dramatic impact on the profits of the company.

A word of caution. In multiple studies and consulting projects, unprofitable customers many times approach as many as 50% of the overall number of customers. Just eliminating the most unprofitable sometimes will do the trick, right? What happens to the capacity (fixed cost/overhead) that these unprofitable customers were consuming? Answer: It is reallocated to the remaining customers. Problem: This will make more customers, who now have added overhead costs allocated to them, turn unprofitable. And so the death spiral begins until you end up with one very unprofitable customer.

Customers aren’t evil! If a customer is unprofitable, it needs to be determined WHY. What is the true root cause of the problem? Is it some inefficiency within the business or a bad policy? They must determine WHY certain customers make them money while others do not. In a recent survey, over 90% of “customer issues” that companies experienced, upon close inspection of actual profitability numbers, were controlled by the companies themselves, not the customers. So if the major cause of unprofitable customers can be determined, why are many companies not doing this?

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