What factors do you consider when it comes to grading your customer’s value to your business? Like most enterprises, does yours simply base this value on the amount that customer spends? Or, do you base it on other criteria, in addition to how much they spend? To help you answer these questions, I’ve decided to include a sample customer scorecard excel sheet that not only accounts for how much your customers spend, but also takes into consideration their payment habits, their contribution to your inventory turnover rates and their impact on your inventory and receivables financing costs.
The idea of this sample excel sheet is to expand the discussion beyond the amount a customer spends and onto how that customer affects your company’s gross profit. After all, your company’s gross profit is determined by several criteria. Aside from the total amount spent, there’s also the impact of your inventory financing costs. The longer you hold inventory, the higher these costs. Customers who purchase products with high turnover rates are ones that help to reduce your financing costs. There’s also your company’s cost of money and its impact on your receivables. The longer it takes a customer to pay their invoice, the higher you receivable financing costs. Also, the types of products your customer buys also dictates their value to your business. Your company has some product lines that create more gross profit than others. As such, you should be tracking the types of products your customers purchase. Now, some companies include other factors, but these are often viewed as the most important. These factors are summarized below, along with the first portion of the sample sheet.
- How Much Does the Customer Spend?
- What Kind of Products Does the Customer Buy?
- How Fast Does the Customer Pay their Invoices?
- Does Customer Contribute to High Inventory Turnover?
Why Should You Grade Your Customer’s Value?
Transparency is essential between your internal departments. Your company must be able to distinguish between a high value customer account and a customer that is less than desirable. It’s not enough that only your sales and marketing teams know which customer is important. To be successful means your entire organization must be aware of each customer’s value. This transparency improves efficiency between departments because it empowers internal resources to respond to situations based on the customer’s value to the business. Regardless of whether it is the customer service, accounting, inventory or the shipping department, having an internal grading system is essential to streamlining how your company manages customers.
The sample sheet takes the grades from each of the four aforementioned criteria, and takes an average score to determine a customer’s value. This value falls between the following four grades below, until a final grade is given to the customer.
This particular customer's value score is 3.75 which correlates to "core customer" designation. To read about the classifications of "business build", "core customer", "convenient sale" and "operational drain", please refer to: B2B Customer Management: Determine a Customer’s True Value
Don’t just base your customer’s value on how much they spend. Your gross profit is determined by far more than just the amount a customer spends on your business. In essence, it’s about finding those customers who help you help them. These are the customers who pay on time, rarely leave you holding obsolete or outdated inventory, and respect your company’s inventory holding costs. When using this sample customer scorecard excel sheet, be sure to make the results available throughout your entire enterprise. Here is the excel sheet: Download Customer scorecard
To read more about grading your customer's value and moving them up the value scale, please read B2B Customer Management: Moving Customers up the Value Scale
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