Stupid Business Formula

On March 17 2010 03:19 Sirakor wrote:
What do you want to do with the results? I'm not sure if it's a good idea to "eliminate" bad customers. Imho it would be better to have a business model that breaks even with the worst case customer and generates more revenue with "good ones". That along with practices and policies that encourage "good customerness", although this is a very tricky area, not only legally, but also with respect to customer satisfaction.

On March 17 2010 03:24 sixghost wrote:

If you have some customers that are "bad" enough customers to result in a loss or breaking even, what's the point to continue selling to them? I think it would probably be a good idea to contact them first to put forth your position, and see if they are willing to do something to reduce their cost to you. But why would you bother otherwise.

On March 17 2010 03:26 Sirakor wrote:


If you have a lot of these kind of customers, you need to rethink your business model ...

On March 17 2010 03:05 yejin wrote:
Hi,

I'm thinking about a mathematic formula that could help determine whether a customer is good or bad for a company.

This would include the following parameters


Sales ($$ per year)
Time spent on the phone (hours per year)
Products bought (millions per year)
Complaints received (n per year)
+ maybe a feeling criteria ?


And this would give a rating from a range 1 to 100 for instance that says good or bad.

Is that stupid, is that difficult, does it even make sense, am I too tired and should get back home asap ?

On March 17 2010 04:33 sixghost wrote:

Anyway, what you're basically describing is Activity Based Costing for customers. This is probably a vast oversimplification of how it's actually done, but heres the basics of how you do it.

1. You figure out how much time the people who deal with the criteria you want(# of sales calls, # of complaints, # of orders and average size of orders, are all common drivers)
2. With that info, you make a work matrix. So say your customer service people spend 50% of their work time dealing with complaints, 30% doing x, and 20% doing y. You then multiply their combined salaries for the period by .5 to get the total cost of dealing with customer complaints for the period.
3. After that, you find the total number of complaints from all customers in that period, and divide the cost found in step 2 by the total # of complaints(Total complaint cost / # of complaints). This gives you the approximate unit cost of dealing with one complaint.
4. Then you just multiply the unit cost by one customers total # of complaints that period, and that gives you the amount of customer service cost they accounted for.
5. Then you just do the same thing for all the other criteria you want, and you'll get a more accurate projection of the customer's cost to you.

I'm not sure what you mean by feeling, or assigning customers a rating. Costing methods like this don't take that stuff into account, it's really the job of the managers of the company to factor in those intangible sort of things, and use their judgment to determine if they are significant.

I'm just an accounting student still, so for all I know this might not be how it's actually done in the business world, but this is the sort of thing an accountant would do for you.

On March 17 2010 04:18 Polemarch wrote:
Is this for one particular company, or are you trying to generalize it? I think it's too hard to try to do it in general (too many factors to consider, many businesses are just radically different), but might make sense for one particular company as a rule of thumb.

e.g.
- Is criticism really bad? You can learn from it.
- As Sirakor pointed out; working on the root cause of complaints/problems is a good idea.
http://www.amazon.com/Best-Service-No-Liberate-Customers/dp/0470189088/ref=sr_1_3?ie=UTF8&s=books&qid=1268767029&sr=8-3

- What if these customers are referring you to new customers?
- Or do they have some other possible benefits, like getting your foot into some industry, or strong testimonials?

- In the web 2.0 world, lots of companies lose tiny amounts of money on tons of freebie customers but know that a percentage of them will convert to paid customers.
- What if these customers tend to require a lot of support early on, but then are mostly self-sufficient in future years?

There's a tendency to push the blame towards bad customers rather than being a bad company that doesn't know how to handle them well, because that's easier.