Calculate the customer’s value by calculating the cost to income ratio of suspicious customers

when you figure out a "cost to income ratio" for each "suspicious" customer, it’s easy to see who gets the worst profit.



Joe Worth


how to identify which customers have been wasting my time and effort, but I can not get satisfactory returns, is that I should say goodbye,


many bosses know that a large percentage of the company’s customers do not make a profit. Although we all listen to "the customer is always right" a kind of argument, that wrong customers or fry them basically equivalent to the spread of heresy. Although it is not easy to calculate potential returns from these "non profitable" customers, it is much easier to properly clean the customer list – a responsible performance for your best customers.

Pareto’s Law (also called 80/20’s law) can be applied here, that is, the vast majority (80%) of the defects or problems arise from the finite (20%) causes. In other words, 20% of the best customers may determine your 80% profit. On the contrary, 20% of bad customers may also be costing you 80%.

the problem is that most small companies can not grasp the methodology, so how to identify whether the customer is worth keeping, continue to wait until he has been training to earn a lot of money for you, or to say sorry decisively to stop


how much profit does the customer analyze?

profit equals revenue minus cost, which is easy to understand. To analyze how much profit a customer can bring, we must first analyze how much revenue he can bring and how much you have to pay. If you have thousands of customers, of course, you can’t analyze them one by one. You should divide them roughly into groups. For example, a restaurant owner can classify customers by morning, afternoon and dinner, and the construction department can divide the retail and wholesale categories.

income can be provided by the financial system of every single invoice easy to list, but the cost involved is not so easy, many hidden costs cannot be calculated. Here is a simple and effective way to divide costs into three categories: sales costs, service costs, and after sales costs. In calculations, keep in mind that indirect costs are not included. In this way, the cost of a customer is very clear.

, but the process of calculation is not that easy. You may need some help from an experienced analyst to allow CFO to do the job, or step by step to train employees. Often the company’s financial statements don’t clearly show costs, and then they can’t straighten out and get the right budget.

digital game

when you figure out a "cost to income ratio" for each "suspicious" customer, it’s easy to see who gets the worst profit. Now all you have to do is