Let's Build a Customer Attractiveness Chart - Pt. 1
In recent years, the attention of legislators and banking operators has increasingly been focused on preventing business crises; that is, they are trying to intervene decisively from the first signs, before the crisis manifests itself in a more serious, if not even irreversible, way.
Well, in this general climate of prevention and early warning, a very important aspect is the quality of commercial credit .
It is increasingly common to find a more or less high number of bad debts in company balance sheets, which can have a significant impact on the company's cash flow , as the company may have difficulty meeting its short-term financial commitments, such as paying suppliers, repaying loans, paying utilities, etc.
Furthermore, if the company decides to take legal action to recover the debt, this entails other costs, which further worsen the cash flow .
It is therefore essential for companies to periodically monitor relationships with their customers and adopt, where necessary, all necessary measures to avoid accumulating bad debts.
Always with a view to prevention, it may be appropriate to periodically evaluate the main customers , so as to estimate their overall attractiveness, and therefore understand whether a particular customer can be considered strategic for the company or whether, on the contrary, it only generates losses.
This involves a whole series of analyses and evaluations, including for example:
- economic analysis: the profit margin generated by each customer is calculated to determine how profitable the latter is;
- relationship analysis: the quality and stability of relationships with each customer is evaluated, to understand which are the most long-term;
- cost analysis: the costs associated with the acquisition and management of each customer are evaluated, to determine whether there is a balance with the revenues generated by them;
- Growth opportunity analysis: The sales growth potential for each customer is assessed to determine which represents the greatest opportunity for the company to increase its revenue.
On the basis of these factors, and others that from time to time we may decide to take into consideration (also in light of the type of company that intends to carry out this analysis), we will be able to understand whether a customer should be consolidated, that is, "cultivated" with particular care, or whether instead we can even get to the point of seriously considering abandoning it, as it is scarcely strategic and very unprofitable, if not downright uneconomical.
This assessment should be carried out regularly, so as to take into account changes that have occurred over time.
A simple, almost rudimentary but extremely effective and meaningful tool could be a spreadsheet on which to set up the data to obtain an attractiveness graph , based on the following two dimensions:
- the size of strategic attractiveness ;
- the size of profitability .
Based on the results thus obtained, all customers are displayed and examined through a bubble chart , in order to draw the necessary reflections and conclusions at a glance.
Let's build it together with some imaginary data, one step at a time!
At the strategic attractiveness level, you can imagine a series of variables to which you can assign a score from 1 to 10, and a different weight, so as to take into account the specificities of each individual customer. For example, you can think of creating a calculation table like the one shown in the figure:
The table shows – by way of example only – a strategic questionnaire composed of a series of 8 questions, which correspond to aspects that, taken together, can be considered suitable for providing us with an overall judgement on the degree of strategic attractiveness of a given client.
Each aspect considered can be given a qualitative judgement through a score ranging from 1 to 10, and a weight in percentage terms, so as to adapt the questionnaire as a whole to the characteristics and specificities of the individual customer.
As you can see from the image, the yellow cells with blue text are the data entry cells, while the last cell of the % weight (D16 in the figure) will be made up of a formula that calculates, by difference, the percentage needed to reach 100%.
The 8 points of the strategic questionnaire, as already mentioned, have been indicated as an example, however they are believed to represent a fairly significant set of observations, and suitable for formulating our opinion on the strategic attractiveness of the customer being examined.
More generally, the main factors that make a customer potentially attractive for a company could be:
- sales growth potential : a customer with strong sales growth potential represents a development opportunity for the company;
- stability : a stable customer who maintains a long-term relationship with the company is much more attractive than one who buys occasionally;
- diversification : a customer who purchases a wide range of products or services offered by the company can help reduce dependence on sales of a single product or service;
- influence : a customer who has a significant influence on the market or on the purchasing decisions of other customers is considered strategic for the company;
- feedback and suggestions : a customer who provides constructive feedback and suggestions to improve the company's products or services is much more attractive than one who does not;
- purchase volumes : a customer who purchases large quantities of products or services is more attractive than one who purchases in smaller quantities;
- referrals : a customer who provides referrals and is able to bring new customers to the company is considered much more attractive;
- flexibility : a customer who is flexible and willing to work with the company to meet their needs is more attractive than one who requires rigid working conditions;
- added value : a customer who represents added value for the company, for example through collaboration in marketing activities or the development of new products, is decidedly attractive.