This is the first in a number of articles I intend to write, focussed on outlining specific tactics for Microsoft Partner sales teams to achieve sales success during tough economic times.
In Australia Microsoft is tackling this issue head on, outlining a number of strategies for Partners - check out Nick Mayhew's blog for details. More on this in subsequent articles.
For now, I want to focus on the issue of customer profitability. In our consulting efforts with organisations - both within but also outside of IT - inevitably we find that the Pareto principle applies to customer profitability ie often 80% of the profit comes from 20% of the customers. (For a step by step guide on how to calculate cumulative customer profitability, download this extract from Carpe Diem's Action Oriented Marketing course.)
When we mention this to clients, there are general nods of agreement - but it is rare for us to see anyone doing much about it!
This phenomenon would not be so much of a problem, if it weren't for the fact that - in general - the majority of a Partner's resources are usually allocated to the tail - making this an unprofitable tail. Chances are some of your larger customers are actually subsidising the smaller ones.
Here are the key steps you should consider following:
- Undertake an analysis to identify which current customers are actually costing you money to service.
- Divide this list of customers into 2 - customers which can be made profitable (perhaps by selling a managed services contract, or by renegotiating service levels etc), and customers that will likely remain unprofitable.
- Implement a plan to exit the unprofitable customers from your business (perhaps by referal to an organisation that can service their needs, but that has a lower cost structure).
Don't, however, stop here - if you do exit these customers, there will be some loss of revenue - it is important you remove the costs associated with servicing these loss making customers. This could mean shedding some staff - although it could also mean redeploying these staff into areas where they can generate more revenue, at the same time adding more value to the remaining customers.
If you think "exiting customers" doesn't happen in real life, check out this article from Brand Autopsy, that catalogues how US telco Sprint dropped 1,000 "demon" customers.
How good a plan do you currently have in place to ensure ALL of your customers genuinely contribute to your bottom line? In tough economic times in particular - can you really afford to be charitable when it comes to supporting customers that will only ever cost you money?
