A customer portfolio is a tool for B2B companies to develop customer relationships that are profitable and sustainable. The process starts by identifying all your company’s customers and evaluating them using meaningful criteria.
To analyze your company’s customers and customer relationships, you’ll first have to define the evaluation criteria. The criteria should cover the most important aspects that tell you whether a customer relationship is worth pursuing.
The evaluation criteria
Here is, for example, a list of criteria you might consider:
Basic information of the customer
- Name of the company
- Customer’s business—investor, governmental organization, municipal organization, manufacturer, contractor, consultant, etc.
- Persons who are involved in the relationship on your customer’s and on your company’s side
- Type of the customer relationship—a partnership, recurring, occasional, or endangered
- Customer service needs—total service, specialized, or basic service
- Customer’s decision criteria when selecting suppliers—price of purchase, total lifecycle cost, ease of purchase, trust, quality of the supplier, etc.
- Our portion of the customer’s related purchases—small, medium, large
- Customer profitability—high, moderate, low (if you have actual figures of the profitability, use them)
- Potential of additional sales—high, moderate, low, none
- Ease of collaboration with the customer—easy, average, challenging
- Customer’s own business prospects—failing, stabile, growing
- R&D collaboration with the customer—ongoing, emerging, none
- Learning opportunities for us—high, moderate, low
- Billings—total billing or billing broken down to service categories
- Change in billings—billing compared to the previous year and projection for the next 12 months
Once you have all the information in one place, you can do various types of analysis. The purpose of the analysis is to discover differences and similarities among different customers. This helps determine your business strategy, customer portfolio, and customer relationship plan.
When analyzing their customer portfolio companies, it can often be seen how a small number of customers are actually creating the profits. On the other hand, less profitable customers can be necessary for other reasons.
Most companies lose 45 to 50 percent of their customers in five years. Acquiring new customers can cost 20 times more than does retaining the existing ones. A five percent increase in customer retention can increase the companies’ profits by 25 to 85 percent. It is therefore important to carefully analyze if and how low-performance customer relationships could be improved.
If you finally conclude that some customer relationships are never going to be valuable, make a clear decision to break them off. Underperforming customer relationships steal time and money from more productive business endeavors. They are not good for the customer either. When you are not able and willing to give your fullest to customers, they will notice.