When you target better customers to work with, your yield is better overall productivity and profitability. What is the profile of those “better customers” you are supposed to be targeting?
One of the best ways to target better customers for better results is to grade your customers. Your current best customers may not be the customers who are best for your business model, core capabilities or strategy.
This exercise is equally applicable to sellers who meet their quarterly numbers by continuously targeting easy customers instead of better customers.
Let’s explore how you currently identify your best customers.
Understand implications from total revenue per customer.
Which of your current best customers contribute the greatest revenue per project to your annual revenue stream? We are talking about how much money you earn by completing each project. You can have one customer that represents the majority of your gross annual income. How many projects were involved to arrive at that total? One mega project, four quarterly projects, 50 small time-consuming projects? Some of my small to medium size business clients were shocked to find out that their best customer took up a lot of engineering time and production capacity by sporadically awarding their company over 50 projects per year. No project ever got close to representing high 5-figures in billings.
Understand implications from total profitability per customer.
Which of your current best customers contribute the most to your company’s overall profitability? How much profit remains after you deduct time, materials, billable labor and non-billable time and materials which were involved in executing strategy and delivering that manufactured outcome to the customer? The non-billable aspect of each project can be a profitability killer. Non-billable time and materials involve re-work or waste when defective materials are produced. Non-billable time and materials involve your people having to travel to and talk with their people to smooth out project inconsistencies and incompatibilities. When you include non-billable factors into your calculations of total profitability per customer, you can be in for a rude awakening.
Understand implications from total projects per customer.
Which of your current best customers contribute the most projects into your pipeline? By now, you have an uncomfortable sense that the customers taking up most of your company’s time and materials (billable and non-billable) can prevent you from working with the type of customers you want to do business with. You anticipated that I would have asked this question first, instead of last. After all, that is the criterion you were using to identify your best customers before we started our discussion today. Your current best customers can suck up time and personnel, preventing your company from being able to allocate resources to pursue longer-term, lucrative contracts with other clients. Your company becomes “known” as a provider of lower value outcomes and/or low volume turnkey projects.
Have you been calculating simple revenue and simple profitability without taking into account how selling inefficiency, production waste and non-billable hours impact your numbers?
Better customers yield more productive, profitable and professionally fulfilling results. Why get stuck serving the wrong target customers?
Remember: you can’t move yourself forward, professionally, without understanding the habits, mindset and skill sets which are holding you back. What are you waiting for?
Babette N. Ten Haken is a strategist, coach, analyst, author and blogger. Her focus: the interrelationship between teams, leadership and culture in technology and manufacturing. Her Workshops and Professional Coaching Tune-Ups focus you and your teams on context, clarity and confidence in the execution of strategy. Babette’s Playbook of collaboration hacks, Do YOU Mean Business? is available on Amazon.com.