Your Worst Customers Are Likely Your Best Profit Opportunities

Every manufacturer and distributor has high-maintenance customers: those who negotiate every quote, pay late, demand special attention, and expect priority handling for rush orders.

It is tempting to accept or ignore these accounts because they can represent significant volume. Bridge sees them differently. Per Tim Emmitt, “Your worst customers are often your best profit opportunities.”

It sounds backward. Here is why it is not.

Start by seeing which customers make you money

In our post on fractional CFOs, we talked about companies that know they are profitable without knowing what, or who, is profitable. Customers’ demands and requirements are a big part of that picture.

To see it clearly, you need to know what it costs to serve each customer or segment. That means capturing all the relevant costs, both in cost of sales and in SG&A, including what it takes to win and service the account. Split those costs into variable and fixed, factor in revenue, and the real margin, or lack thereof, for each customer starts to come into focus.

Rank your customers, honestly

Bridge uses a Customer Prioritization Matrix to sort customers into five tiers, from A (top, must keep) down to E (bottom). The ranking weighs size of business, profit contribution, payment timeliness, potential growth, and other factors.

Your A customers are the ones you protect. The greatest opportunity often sits at the other end. Your C, D, and E customers can provide you with your highest profit improvement opportunities. Increasing prices with these formerly “lower priority” customers can deliver the biggest profit improvement at little and often minimal or no risk to overall profitability.

Reprice with confidence

Repricing the bottom of the list can feel risky. It is usually not. Remember, these accounts contribute the least profit to begin with. And when a customer says, “too expensive,” it is sometimes a sign they do not see enough value from you. This turns it into more of a strategic question than a pricing question.

The goal is not to push anyone away. It is to make sure every customer relationship is desirable and profitable.

Manage your discounting

Next, look at your discount. Where are reps discounting most heavily? Which customers receive the deepest cuts?

A clear discount approval matrix and floor prices by segment give your sales team a framework instead of guesswork. From there, further discounts need to be tied to objective criteria, like deal size or contract length. “Strategic” discounts outside the matrix need to be approved at higher levels.

What it looks like in practice

A privately owned manufacturer with about $15 million in revenue came to Bridge facing sustained losses and negative cash flow. Bridge worked with the owner and head of sales to evaluate the company’s pricing strategy and market positioning, then led the execution, from aligning internal stakeholders to supporting customer communication.

The company achieved an average 9% price increase, and EBITDA grew more than fourfold, by over $1.3 million. It reversed consecutive years of losses and, several years later, continues to perform strongly.

Guaranteed results and next steps

Across clients, we typically find overall price increases between 3% and 8%, sometimes higher, and we guarantee the first year of profit from realized price adjustments will greatly exceed our fees.

We use our proprietary 8-step process to work with your team to quickly identify pockets where pricing will be achievable with minimal risk of losing important business or reducing profit.

It is not always easy to take an honest look at the toughest customers. But that is often where the best profit improvement is waiting.

Curious which of your customers are holding back your margins? Give us a call.