Sixth Article in the Series:
Making Work Play
From last week’s message, you’ve prepared a worksheet that ranks your clients based on revenue from highest to lowest. We are now going to look at this list a bit more deeply.
First, you want to know the breakdown of revenue generation in your client base. What percentage of your clients provide the majority of your revenue? The Pareto principle is a good rule of thumb; that is that 80% of your revenue comes from 20% of your client base. The result is not always that exact, yet you want to identify the point, client number XX, where your cumulative revenue is 80%.
On your worksheet, calculate the percentage of revenue for each client, keeping a cumulative total in the next column. Highlight the point/client where you reach 80% of your revenue. How many clients does it take? What percentage of clients does that represent? Now you have a starting point for understanding the financial drivers of your business.
The next area of evaluation is profitability. This can become quite subjective for service providers who do not charge on an hourly basis. Use your best judgment to determine which of those “80 percenter” clients are most profitable for you. You may want to determine an “hourly rate” for purposes of this exercise. We have all experienced those high revenue clients that suck time and energy in a disproportionate amount to other clients. Yes, you want to know and recognize this in your client base. The revenue is nice, yet you likely don’t want to end up with a client base full of these types of clients. Talk about being on a hamster wheel!
After evaluating profitability, look at “likeability.” That is, who refers you? Who from this group of 80% of revenue likes what you do for them and refers you to others? It does not matter if the referral resulted in business or not; the mere fact they referred you tells you something about your relationship.
Join us next week as we put the finishing touches on this analysis. If you would like to know more about identifying your Ideal Client, contact me at 713-705-3815 or barbara@acceluspartners.com.