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Customer acquisition and retention is the lifeblood of most businesses.

But a company's customer acquisition and retention can only be as strong as the profitability of a company's customer relationships. In other words, if you're acquiring and retaining customers that are only marginally profitable, or not profitable at all, chances are you won't thrive.

Here are six tips for building the only customer relationships that really count, profitable ones.

Track customer profitability

It should go without saying that you can't build profitable customer relationships when you don't know who your profitable customers are. That's why it's important to track, on a per-customer basis, profitability. In some cases, you may be surprised to learn who your 'best' customers really are.

Don't win new business with discounts

While discounting can seem like a good way to win new business, it's difficult to build a profitable relationship when your first customer interaction involves a discount. After all, if you're willing to provide a discount right off the bat, it sends a message that you're readily willing to sell your product or service for less than what you 'normally' charge.

Do more business with fewer customers
 

While there are often advantages to having a large customer base, more customers doesn't necessarily equal a more profitable business. That's why it's important to investigate the possibility that your business could be better off serving a smaller number of more profitable customers.

Expand your offerings

One of the best ways to do more business with fewer customers is to offer new services. Obviously, you should be careful when doing so, as poorly-executed expansion can harm the quality of your core offerings. But developing complimentary products and services for your most profitable customers is often a great way to grow your bottom line while at the same time growing the strength of your customer relationships.

Never take your eye off of your margins

There's a lot you can do to boost your profitability on the customer side of your business, but don't forget about the product and service side. If you sell a physical product, for instance, never assume that there's no further room for reducing the costs of production.

Don't be afraid of parting ways with unprofitable customers

One of the most obvious ways to build profitable customer relationships is to ensure that most if not all of your customer relationships are profitable. Sometimes that requires saying goodbye to customers who you can't service profitably.

Photo credit: AMagill via Flickr.

Patricio Robles

Published 26 November, 2010 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2393 more posts from this author

Comments (2)

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Jason mKey

I love the "do more business with fewer customers".

Easier said than done, but great advice nonetheless.

almost 6 years ago

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farouk

that is very useful

thank you :)

almost 6 years ago

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