It’s difficult to think of customers as simply not worth your time, and firing some—especially when you’re a new business owner—seems preposterous. However, there are going to be (if they don’t already exist) customers who provide greater value to you than others do. You must differentiate between those customers that are profitable and those that are not. It’s important to identify and get rid of customers that may be costing you more money or time than they are worth. Armed with this information, you can focus your marketing and sales efforts on attracting and retaining your most desirable customers.
How do you go about this challenging task? If you haven’t already started calculating customer lifetime value, now is an important time to begin. Calculating customer lifetime value requires a simple formula. First, determine what it costs you to attract and retain (don’t forget this one) a given customer, then subtract the amount of revenue that patronage bring to your business. Not all customers or prospective customers will help your business grow. Sometimes they seem profitable on the surface but end up providing a negative return on your investment. By understanding the revenue generated by various customer groups over the span of their relationship with you—and recognizing how their business (and the business of individuals they refer to your company) affect your top line—you’ll be better able to target your sales and marketing efforts to focus on the most customers most likely to help you grow.