Business Advice Tip #8 – Rank Your Clients
Business Advice Tip #8:
No business person wants to turn down a sale and in our current economic environment it is understandably difficult to walk away from a business opportunity. That said we know that not all clients and customers are created equally and some of them might actually be doing you more financial harm than you realize.
Why Ranking Your Clients Is So Important?
Let’s work this backwards from D to A:
Especially if you know your Gross Margin and your breakeven point, you might actually find that D List clients are COSTING YOU MONEY whenever you work with them.
So you may THINK you are generating a profit, but when you analyze the time and out-of-pocket costs they generated beyond your project forecast, you may find that you lost money. So why keep them around? The easiest thing to do with a D List client is to raise your prices. If you still decide to work with them, they’re going to pay for the extra time, energy and out-of-pocket costs that they drain out of you. Best yet, if they balk at your price increase they’ll go to your competitors and drive them crazy.
Your C List client has to be managed almost constantly, but if you can put up with the schnorring you might be able to train them up to a B.
There is another interesting statistic that makes it very important to manage your D and C List clients so that you can focus on building more A and B List clients:
If you know your Present Margin is 25%, for example, and you increase your prices by 10%, your sales could decline by as much as 29% before your Gross Profit is reduced. Assuming you know your Gross Margin, it really pays to rank your clients and know which ones are worth keeping around because you can afford to lose clients and not affect your profit margin.
B List clients are great for steady business.
So your next strategy is to see if you can’t upsell them or cross sell to them and get even more business. There’s also a chance that you can move a B List client up to the A category, especially if they have good financial resources.
A List clients are where the real growth opportunities exist for your business.
You generally will not have a lot of A List clients – of course, the more the better – however, these are the people that have financial resources and have friends and business relationships with financial resources – and you can actually ask them to set up lunches and meetings with warm leads to help you get more business. They are usually more than willing to write testimonials and are a great source of information if you are looking to improve your Unique Selling Proposition. More importantly, A List clients CALL YOU when they have a project in mind. They see you as a trusted advisor in your field of expertise. So, naturally, you want to do everything you can to make an A-List client feel extra special. However, A List clients are worth the effort.
Conclusion
Ranking your clients can generate additional profits and pinpoint where you may actually be losing money. Once you create the criteria that are right for your business, it is a remarkably simple exercise to go through. So start today. And don’t be afraid to “fire” a few D and C List customers if it will free up more of your time to get A and B List customers that can help you to move your business forward – even in this economic environment.
Written by Coach Josh Slavitt, pictured here with his son Liam
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