Customer portfolio analysis: When customers become “poor dogs”

This week, I want to show you how to part with customers. Yeah, you read it right! An important factor to be successful as a freelancer is the right choice of your customers. Invest more time in clients you like to work with and who are profitable, and part with clients who suck out your energy without making a significant profit. There is a good strategy for this, the customer portfolio analysis.

What is the customer portfolio analysis?

The customer portfolio analysis is derived from the classic portfolio analysis. It was designed to measure products and services of companies according to market shares and market growth and to enter them into a matrix. The aim is to find products that are not very profitable and to remove them from the portfolio. This allows the company to use its energy and budget to drive promising products forward.

The portfolio analysis consists of a matrix with a total of four segments:

  • Stars: Products with a high market share and strong market growth are entered here. Stars can offer enormous opportunities.
  • Cash Cows: Although market growth is small, the relative market share is high. These products are very profitable.
  • Question mark: Small market share, but high growth potential. Although these products involve risks, they can also lead to market leadership and become a star.
  • Poor dogs: Low market share and low growth potential. As soon as the product does not generate significant profit, the company will divest the product.

To make the theoretical model a bit more practical, I have created the following example graphics for you. It shows an example from the music industry (10.2015).

So what does this mean for your client portfolio as a freelancer?

We are now converting the product portfolio into a customer portfolio. Try to assess your customers using the following criteria.

  • Share of your annual turnover
  • Potential for lucrative follow-up orders

The matrix for the customer portfolio analysis then looks as follows:

Tip: New customers should first be put into the question mark category. It can be worthwhile to woo these customers strongly.

Conclusion

The customer portfolio analysis is a useful tool. It helps to focus your energy on the right customers. Surely, at the beginning of a career as a freelancer it is difficult to make such a classification. At the latest when you are no longer able to keep up with the processing of your orders, you should do a customer portfolio analysis. Even if working with a customer proves to be difficult, you should check how much this customer contributes to your total turnover. Choosing the right customers is one of the key success factors for freelancers. Start right away and download a template here and create your personal customer portfolio analysis.

2 Comments

[…] Both variants have advantages and disadvantages. Quality leadership offers high margins compared to price leadership. With quality leadership, however, there is a risk that you will be dependent on a few large customers due to the narrower target group. Especially price-conscious customers are usually not very loyal. This means that as soon as a competitor is cheaper, your (ex) customer buys from the competition. Separate yourself from customers who demand high quality but have a poor payment record. You can find out how this works in the article: Customer portfolio analysis: When customers become “poor dogs”. […]

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