With a few simple steps, you can increase the profitability of your business this year by focusing on acquiring and serving better customers. How to start:
1. List your current customers. If you use QuickBooks, take a minute to run the “customers by revenue” report for this year to date. If you don’t, just put together a list of your customers. Now, sort them by size, so that your largest customer is number one, second largest is number two, and so on, right down the list until you’ve listed your top twenty.
Now, if possible, sort them again by the dollar amount of gross profit (the money you make after subtracting any direct costs to serve that customer) you collect from each customer. If you’re not sure, take a good, educated guess.
2. Select the best. You already know what types of customers are best for your business. But, it’s easy to lose track of that as your business grows. Look over your list: which customers really are best for your business? To find your ideal customers, we look at five aspects:
1. Who needs your services the most
2. Who values your services the most
3. Who has the budget to pay for your services
4. Who is easiest to persuade to buy your services
5. Who is easiest to work with
You’ll quickly see that those who float to the top, when judged by these five criteria, are often very different than those who provide the most revenue.
3. Refocus and cut. As you continue to add customers this year, focus on those with similar characteristics as your ideal customers. Consider firing the customers at the bottom of the list – and not accepting new customers who share the same traits. Nine times out of ten, we find that a business is losing money on the bottom 10 – 20% of their customers. Your business will be better off if you gently move them out of your portfolio. One of our clients followed this principle and doubled her profitability in twelve months – while serving fewer customers and working fewer hours. Not too shabby.
If you have questions about the process or would like to talk through how to calculate gross profit, just email or call.