Question

Managers are required to make many tough decisions over the course of a workday. One of the tough decisions a manager may be faced with is the decision to drop an existing customer from their portfolio.

Some companies refuse to drop customers (including non-profitable customers) in the hopes that these unprofitable customers will become profitable in the future.

Other companies do not want unprofitable customers impacting their bottom-line year after year and choose to drop them.

In your opinion, when should unprofitable customers be dropped (if at all)? Provide an example from a newspaper or other media sources from the past three months to support your argument.

The Harvard Business Review released a case study, included in our readings this week, on “When to Drop an Unprofitable Customer.” You may choose to discuss this case analysis as part of your response; however it is not required.

Answer 1

Knowing when to drop an unprofitable customer is a prudent business practice. It does not require complex calculations, and it is an important decision that needs to be made for the health of your business.

If you sell a product or service, how do you know if you are making a profit from all your clients?

A profitability analysis of the revenue and profit generated for each customer can answer those questions. The answers can be an eye opener. Many businesses actually are losing money on some customers…are you?

To understand the consequnces, impacts of droping an unprofitable business will be explained by a case study below :-

Summary

Manufacturer - Egan and sons

Customer - Westmid builders

Products - doors and staircase

business relationship - 63 years old

Problem - Relationship resulted in westmid sales resulting in 40% of Egan's profit loss

Question - Should Egan & Sons drop Westmid builders ??

The first step is to do the SWOT analysis and TOWS analysis and understand the positive and Negative outcomes

Positives Outcome -

1.Westmid became a profitable customer

2.Egan gains a competitive advantage over chinese manufactures through westmid and showrooms

3. Local communites benifits from both businesses positive relationship

Negative Outcome

1.Westmid continues to be a laggard

2.A continue in decline in profits make siautation worse

3. An ugly break up ultimately happen

Conclusion

1. Dropping the unprofitable customer should never be the first step

2. First focus will be on cost savings

3.Try to begin capitalising on profitable products

4.Focusing on restoring Westmid to the state of profitablity and thus continue the relationship

5.drop should be the last resort