Do You Make a Profit on Every Client? - Question #13

Welcome to video thirteen of twenty. In this segment we've been taking about your clients. If you really want to understand what drives your revenue from your client's perspective you've got to ask some targeted questions. In the last video we asked why you're clients buy from you. But once we know who your clients are and why they buy from you, what's next?

The fourth question I have about your clients is:
What’s your profit margin on each client?

It's one thing to make a profit on a product line or a service line.
We talked about that earlier...
But are you sure that each and every one of your clients are profitable? Are they all pulling their weight?

Small companies don't always handle every client in the same way.
Sometimes you negotiate different deals with different clients. As time goes by, they raise your costs by asking for little things to be thrown into the deal here and there. Over time, you end up with one client subsidizing another because those little asks turn into costs inside your business.

When I ask this question I'm comparing your clients to one another to see which clients are paying your bills. It does you no good to have your smallest revenue client giving you the largest profit margin while your largest revenue client has a very narrow profit margin. We need to make sure that none of your clients are subsidizing other clients.

Here's the trap you get caught in...
You become afraid of telling that client who gives you a massive chunk of your sales "no" because you're afraid of losing the revenue. Here's the thing...
Revenue does not equal profit. I'll say it again, Revenue does not equal profit.

The second part of the trap is that you neglect the smaller client who's actually very profitable. Which would you rather have? Fifteen highly profitable clients that are each small revenue, or two big revenue clients where you have thin profit margins on both? I can tell you this for certain. Losing one client in the first scenario is far less painful than in the second scenario.

For the clients who are the furthest below your overall business pre-tax profit margin, we've got work to do. And the bigger their slice of your revenue those clients are, the faster and harder we've got to work. You don't want to be in that situation very long.

The third scenario is this. If you have one client who makes up most of your profit and most of your revenue then that's a risky situation and you'll want to make a focused effort to add more clients quickly. If you're in this situation your business is a glorified department of another company. That's a risky situation as well.

The overall goal is to be working toward balanced revenue and profit throughout your client base. Looking at those kinds of scenarios again fills in more of the picture about what’s going on in your business.

For more free business coaching tips and free resources check out my site at: https://www.askphilipwilliams.com

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