What You Need to Know About Your Best Customers

Is that a question you can easily answer? Many manufacturers consider their three or four highest revenue customers to be their most valuable customers. If you stop and truly profiled those top revenue customers, what do you know about them? If you could grow your business by adding a few more clients with the exact same profile as your top revenue producing clients, would you be more or less profitable in five years?

The reality for many manufacturers is that they’ve identified their top customers as their high revenue customers, but they are not necessarily the high-profit customers. If a manufacturer added several more new clients with the same profile as their highest revenue clients, they most likely will be less profitable in five years. Adding more revenue with lower margin ultimately creates a larger portion of the business that drives less profit.

The real question manufacturers should ask themselves is who their best customers are, rather than their largest. Which customers do you like working with the best, value you the most, and provide a desirable profit margin? These considerations open up a new dialogue and allow you to look at issues such as concentration – having too much revenue tied to one or two large customers or distributors.

Many businesses grow by landing several large accounts. You may bring on a big name customer and have the ability to grow with them. But if that customer suddenly decides to stop buying from you tomorrow, will your business be able to withstand the lost revenue?

You owe it to your employees, your other vendors and everyone else who counts on you to keep your business diversified and healthy. Many businesses have grown because of one big dog of a customer, but that distraction actually prevents them from diversifying into other more profitable relationships or product lines.

We often overlook the smaller lesser-known customers that uniquely value your product, enjoy working with you and have a shared history. Those are the customers who aren’t going to go away or cut the price down tomorrow and, most importantly, who provide great margins. Those are your best customers. And if you could double or triple the number of those customers, your profitability would go up exponentially.

Your banker or other professional advisors may see revenue when looking at your financials, but they often don’t know what to do with that information to help your manufacturing business grow profitably.

Finding a business advisor who understands manufacturing, growth and marketing strategy, including pricing, products and promotion, is important to developing a longer term business plan. An experienced advisor will help you create actionable steps to improve the overall business, diversify your customer base and product lines, and expand markets into international spaces in ways that can really bring value to your business and bottom line.