Profit-draining customers getting you down? Here are three strategies for managing them

Managers today have a huge unaddressed opportunity to engage and manage their large, profit-draining customers, creating win-win relationships that rapidly increase profits and lock in these key customer relationships. As yesterday’s mass markets fragment, managers must shift from broad-based product management to highly focused management of target customer segments — and even individual customers.

In previous HBR articles, we described transaction-level profit metrics, an innovative new set of digital transformation metrics. When companies use these metrics (creating an all-in profit and loss statement for every invoice line), they quickly see that their customers fall into three broad profit segments:

1. Profit peaks: High-revenue, high-profit customers (typically about 20% of the customers that generate 150% of their profits);
2. Profit drains: High-revenue, low-profit/loss customers (typically about 30% of the customers that erode about 50% of these profits); and
3. Profit deserts: Low-revenue, low-profit customers that produce minimal profit.

The potential profit increase from turning around money-losing customers is huge.

Here’s how managers can turn their profit-draining customers into profit peaks: