Do you really know who your best customer is?  Chances are your
answer would be based on who your “biggest” customer was, in terms of
total sales.  Struggling businesses are almost always wrong when you
ask them who their best customer is.  Let me give you a good example:

While it may be true that nothing happens until
the sale is made, it’s more true that the world doesn’t really start to
turn until a profitable sale is made.  I remember going into one company where they had a handful of big customers and a multitude of little ones.  As you can imagine, the big customers got most – if not all – the attention.

 There was a big disparity between the biggest and the smallest customer.  In this business, the biggest customer was over a million dollars (and 10% of the total business).  The smallest customer was around $500 annually.

 Mr. Big demanded all kinds of concessions.  He was the biggest and he knew how to play that card.  He
demanded (and got) volume discounts, free shipping, 2% early payment
terms (which he took whether he paid early or not), and other things.  He
also demanded that the SKU’s he ordered be kept on the shelf at all
time, so his orders could be processed and shipped the same day (this
in an industry where 4 weeks is the standard wait.)  In order to do all that, the smaller customers got bumped, plain and simple.  Some smaller customers were waiting as much as eight weeks for their product.

 The first thing I did was a profit analysis by customer.  I took everything into account, when determining profitability.  It was amazing that as a percentage, the profit picture was completely different than everyone assumed.  For
example, the small customer that was waiting eight weeks for product
was contributing nearly 43% of the total sale to gross profit. 

 How much do you think Mr. Big contributed?  I was shocked to see that Mr. Big was contributing less than one percent to gross profit.  How much did that amount to in dollars?  Right at $2,000 gross profit per year on sales of over $1 million.  I
told the VP Sales and Marketing we had to call Mr. Big immediately and
tell him we could no longer hold his product on the shelf.  We would also no longer be able offer payment terms and all the other discounts.  The VP looked me in the eye and said, “He’ll never tolerate that for a minute.  Are you willing to walk away from a million dollars?”  I replied, “No. I’m not.  But I am willing to walk away from two thousand dollars.”  Long
story short, Mr. Big indeed walked away, and we started caring for the
little guy and while we were able to maintain our sales steady, profits
went up dramatically.

 Now by telling this story I’m not suggesting you get rid of your biggest customer.  What I am suggesting is that you know exactly where your money comes from.  Sales is only half (or less) of the story.  While
you need to know what sales are in order to be able to see where you’re
going, you also have to know how much you make off each sale to bring
the sales picture into perspective.

 When it comes to evaluating your best customer, you need to take
more than sales into consideration.  Your best customer is the one who
pays your bills.  You’re not paying your bills if your sales aren’t
profitable.  So be aware of what’s really going on with all your
customers.  I’ve said it before and I’ll say it again: Knowing where
your money comes from is the key to success in your business.