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Finding the right customers and becoming more profitable
How you are hurting your bottom line...
Today, I want to address an issue that I see afflicting many professional service businesses. It directly relates to your profitability and how you are positioning your brand. The issue is this: when you do not have a strategy to select your best-fit Dream Customers, you hurt your bottom line.
Let me explain.
Earlier today I had a great meeting with a prospective client. As part of our interview process, I sat down with the prospect and drilled down into her business model and financial objectives. My goal with initial meetings is to ask lots of questions to see if we can contribute significantly to a company's success and to see if they fit our criteria as a Dream Customer.
Check out this photo from the whiteboard process I led her through. As you can see from all of the notes on this board, our conversation was quite detailed and oriented around results.
Our method of selecting the RIGHT customers
Having a process is essential. Most businesses (especially in a down economy) are willing to take just about any work that comes through the door. After all, if someone has money in hand, why turn them away? Unfortunately, this line of thinking actually hurts your bottom line.
I'll use our business, Kinesis, as an example. Each new client we sign up represents a tremendous opportunity. New clients mean new revenue, future referrals, and a chance to learn industry-specific knowledge. Even better, really great clients help us become better businesspeople, as we learn from their success.
See the opportunity and look at the risk
A client is an enormous asset to Kinesis and they are a major investment of our time, energy, and resources. And most of the time, this relationship results in significant results for both parties. Administrative costs aside, we spend many, many hours getting to know the client's processes, politics, industry, goals, and marketplace. While we charge for much of this work, there are untold hours that are done at a reduced (or free) rate.
As most creatives will attest, some of our best "work" is done while walking the dog, looking out a window, or just daydreaming. It's impossible to calculate the mental investment in a client but, at Kinesis, it's a large portion of our time. With a great client, this investment pays off handsomely. We learn their business and create powerful marketing campaigns that bring them a significant return on their investment.
In contrast, when a client is a poor fit and the relationship is a struggle, most (or all) of that initial investment is wasted. And you typically spend hours of unbillable time putting out fires and spending your time feeling bad about your client. When the relationship finally comes to an end, you often do not get the great referrals and "follow-on work" (subsequent projects). Even worse, the poor fit results in huge opportunity costs and a client with a limited Lifetime Customer Value.
It's also just not fun.
Experienced business owners will tell you that the best clients are a pleasure to work with. They're profitable, appreciative, and truly collaborate to create a win-win scenario. Not-fun, poor-fit clients take more time, mental energy, and cause you to take your eye off the ball. They're usually less profitable too. Sadly, this distraction causes you to provide less value and benefit to their business, creating a lose-lose scenario.
The solution to make your business more profitable
Learn to say "no." While this is a tough adjustment for many business owners, it's absolutely critical that you say "yes" to the good fits, and "no" to the bad ones. Selecting the right customers will make you more efficient, attract like-minded referral work, and allow your organization to be more profitable.
Here's a quick exercise that helps many of our clients:
- Get a piece of paper and draw 3 columns.
- In the first column list your clients in order their profitability - most profitable at the top, least profitable at the bottom.
- In the second column, write the annual revenue the client brings to your company.
- Use the third column to apply adjectives to each client (ex: pleasant, fun, easygoing, motivated, distrustful, draining, etc.)
- Now go back and circle all of the clients that have negative adjectives.
What is very interesting is that 9 times out of 10, the most PROFITABLE (don't confuse this with gross sales!) are also the ones with the most positive associations (pleasant, easy, friendly, respectful, loyal). The least profitable usually have the most negative associations (high maintenance, untrusting, hagglers, etc).
To make your business become increasingly profitable and enjoyable, there are two actions to take:
The first is to carefully define your Dream Customer. Write down as many things about them as possible - their annual revenue, personality, industry, business approach, and the amount of money they spend with your company. Look at the list you created above. In most cases, this description will align with your clients who are at the top. Now, commit to using the criteria you just defined as your new rulebook for accepting new clients. If a prospect doesn't fit, then respectfully decline the engagement. Only take on new work that is a match. Pretend your business is an exclusive nightclub and you only let a select few past that velvet rope. And yes, your company is that special!
The second action is difficult, but in the end amazingly rewarding. Again, go back to the list that you created. Draw two boxes (you may want to use different color markers). The first box goes around the top 20% of your profitable clients. The second box goes around the bottom 20% of your clients - those that are the least profitable for your company.
Now, over the next year let go of the clients who are the least profitable. Yes, fire them! It is one of the hardest things you will have to do, but in the end you will feel so relieved. Next, use your Dream customer criteria and the top 20% of your list to plan all of your marketing and sales efforts. Your goal is to replicate your most profitable, best -fit clients. Each year, rinse and repeat - eliminate the bottom 20% and focus your marketing and sales on your Dream Customers.
If you are diligent about following these steps, your business will not only grow its bottom line but it will become more profitable and waaaay more fun. You will have nothing but clients who appreciate and respect the work that you do and are a great fit for your goals.
Good and bad: it's all relative
As a parting thought I'd like to share why I've avoided talking about "bad clients" in this article. Certainly, there are businesses out there that are truly "bad." They're dishonest, unethical, disrespectful, etc. However, the majority of businesses are well-intentioned and truly looking for a good partner to help with their efforts. Your goal, as a business owner, is to identify those organizations that align with your services and values. They're your BEST clients and will lead to long-term success.