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Understanding Your Costs and Most Profitable Client Relationships |
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Sales & Marketing
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Written by Jeff Tintle, Sr.
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Last month I wrote an article entitled, “Three Reasons for Segmenting Your Client Base.” In the article I listed the Retention of Profitable Clients as the first item. This month I’d like to elaborate on that point and provide some specific thoughts for you to consider. Retention of profitable clients; sounds like a no-brainer right? We all want to retain our most profitable relationships. But are we doing the right things on this front? Hang in there with me because you might think I am off on a “bunny trail”. In order to retain our most profitable clients we have to consider two, underlying components. They are:
- Identification through costing and relationship profitability
- Developing a Touch Strategy
Identification through Costing and Relationship Profitability Before you can identify who your most profitable clients are you must get a good handle on your costs. At the risk of stating the obvious: Sales price less expense equals profit (+/-). Identifying all your costs could be an exhaustive process. Depending on how complex (&/or large) your business is it could take months or years. While this might be a laborious task for some it is a wise and necessary investment. As a financial services consultant I saw many bank clients get fooled by the top-line number without a focus on the associated costs and bottom-line profit. As crazy as that sounds it’s true; how about you? So, consider these points when analyzing the costs for your products and services:
- Development time: How much did it cost to development the product? This includes R&D, capital expenditures, any labor and applicable overhead associated with this effort including Sales, Marketing & executive management’s time if applicable.
- Production and/or Delivery time: How much is it going to cost to produce this product (or deliver from a Service perspective)?
- Service Time: What is the effort to support this product or service?
After you understand your product and service costs you will then be able to determine the value each client relationship has to your business. Rolling up the products and services your client has procured (or uses) will allow you to see how much they’ve really contributed (or taken away) from your bottom line. As I mentioned above, don’t be fooled by the top line revenue number. Often times that means “zip”. I have seen hundreds of times where the “big deal” was priced so skinny it was literally, “no big deal”. Know and understand your costs! Developing a Touch Strategy Once you’ve identified your most profitable clients you should develop a “Touch Strategy”. By that I mean define how you want to interact with (stay in front of) your best clients. Remember the 80-20 rule. It applies here too. 20% of your clients make 80% of your profit. Do you want to be spending the majority of your time with the people that are costing you money or contributing a small amount to the bottom line? That is of course a rhetorical question. My guess is you spend more time than you care to with the noisy, high-maintenance clients. Most organizations do. So if you are not spending time with your best clients guess who is showing them some love? Ding-ding-ding, yep, your competitor! Here are a few things to consider around developing a touch strategy for staying in front of your most profitable relationships: Determine the number of face-to-face meetings in a given year. Don’t be a pain. If you schedule a meeting, say or contribute something of value to the client. Time is everyone’s most precious commodity. Develop the proper, alternative touch-point delivery channels. Once again the key thing is determining the right frequency. You can quickly become annoying if it is too frequent. Conversely, if it is too infrequent, they forget who you are. If you are not sure, ask your client! Here are some touch-point channels to consider:
- Electronic newsletters
- Emails
- Conferences
- Videos
- Webinars
- Blogs
- Podcasts
In summary, if you remember nothing else remember this; it costs less time and money to retain a good client than it does to find a new one! However you elect to pursue retaining profitable clients it is well worth the time. As always your comments and feedback are welcome. Register and comment on this article. You can also email me at
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Jeff Tintle, Sr. |
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