When customers do a high sales revenue with a company, this doesn’t automatically mean that they are as profitable, as we may think that they are.  Unfortunately, we tend to pay most of our attention on how much turnover an account does with our organisation, rather than focusing on the overall cost of serving this particular account.

The overall cost is related to the service that each company delivers to a client in different stages of their business relationship such as pre-sales, production, distribution, and after-sales. We need always to remind ourselves that, after all, profit is calculated from the subtraction of the net price minus the cost to serve.   The issue, though, is that companies think that it is too much hassle to monitor the service expenses per account.  Overall, this proves to be a serious strategic mistake, and its’ consequences are discovered, after the financial results are issued.

In most of the cases, customers become “profit drains” not because of price, but because they cost too much to serve.  So, the first think that needs to be done, is to keep score, but in order to keep score, we need to set the right KPIs, so as to calculate as accurate as possible, the involved service costs per stage.  Once this is done, it is absolutely certain that significant variations among customers will become evident, therefore customer segmentation per profit would be necessary, once the state of each customer will be identified. 

It is also most probable that some high-turnover clients may prove to be not as profitable as we thought that they were.  So, the organisation should form inter-departmental teams, that should focus on lowering the cost to serve not only these customers, but all the customers that are costly to serve. 

Before doing that, the company should devise a clear strategy on how to manage the accounts that is dealing with.  If this is defined, then it should also made clear to all the stakeholders involved, so that customers will know what to expect and employees what will be required from them.

Strategy is all about choosing what not to do, as there are always limitations in resources and capabilities, therefore choice is exactly what needs to be done in this case as well.