How to focus your energy on the customers that matter
A new economic landscape is upon us, and businesses need to focus their energy on generating profits and cash flow
As economic conditions continue to adjust, companies need to be adaptable. As more legislation is put into place due to the COVID-19 outbreak, many businesses are seeing labor shortages, supply chains slow, and overall output decrease. During this time, it is important for businesses to identify customers that are generating significant operational cash flow for their business. This is where customer rationalization comes into play.
By understanding the breakdown of your cash flow, you can identify the customers that are supplying the majority of your profits, as well as which customers are diligent about paying on time. These two factors can help your business redirect its limited resources and prioritize accordingly. The businesses that successfully identify these high-priority “Wheelhouse” customers, are going to have a significantly higher chance of keeping consistent cash flow coming into the business. The businesses that continue to try and fill every order as they usually have will likely struggle.
As orders continue to come in, executives need to understand which are worth prioritizing and which need to be placed on the back burner or turned away. Understandably, turning away business in this economy can be a gut-wrenching decision that, on the surface, may not look like it makes sense. However, by focusing your production, and/or services, on “Wheelhouse” clients, you can set your business up for long-term success. Narrowing the scope of your portfolio can allow your business to take cost-cutting or slow-down measures but still maintain the bulk of your profits. The hard truth is that, with a potentially dwindling labor force, and slower supply chain, companies need to narrow their focus on the customers that matter.
“The hard truth is that, with a potentially dwindling labor force and slower supply chain, companies need to narrow their focus on their most profitable customers.”
Exercises like an 80/20 Pareto Analysis can help steer your business in the right direction. By layering in a customer’s adherence to payment terms, pricing programs, cost of goods sold, SKU complexity, and several other factors, you can create an in-depth look at your portfolio and understand which customers stand out. Being able to manage your cash flow over the next several months is going to be crucial, and Customer Rationalization is a great starting point to understanding the current state of where that cash flow comes from.
At AMEND, we believe the companies that are proactive in their approach to combating this economic downturn are ones that will be able to grow and weather the storm. That proactive nature starts by understanding where your strong, dependable cash flow comes from.
To learn more about how AMEND continues to drives results through data in our community, and how WE can help YOU better understand your customer portfolio, please see our case studies.
Be on the look out for our “How To” series, where some of our analytics experts will be breaking down simple ways to build models to better prepare your business.