As you grow a service business, you also have to scale your sales process. Service businesses tend to be client oriented; they have to be. However, once you hit a certain size, the only way to focus on your clients is to focus on yourself.
Business growth comes from inside. Your company has to know what it actually does, what it can do, how efficiently it can do it, what it can’t do, and how to quantify these to determine what it can realistically sell—and to whom.
Sales is the first road into your financial model (marketing is a map to the road), which means it can be one of the easiest to control (for some factors). Certain levels of service are only practical at certain sizes (for most companies). As you grow, you need to focus on the cost-to-income ratio of clients, how to measure the profitability of a client, and how to use these to focus on your core competencies and scale your sales.
The sales funnel filters out incompatible clients (you don’t try to sell women’s clothing to the youth baseball team, for instance), but you also need to rate the quality of a client.
You can choose to accept or turn down a client. Some clients are worth more than others for your business, and others can be worse than not having any business at all. When your business is small, an extra guaranteed $500 a month from a painful client can be the difference between staying in business or not. As your obligations grow, however, this $500 a month tends to become more and more expensive.
Cost-to-Income Ratio
To weed out clients that are not profitable for you, you need to first look at cost-to-income ratio. Acme and Standard may both bring you $2,000 a month gross, but what do they bring you net? What do they bring you after you factor in every ephemeral operating cost?
Some clients will cost more, and the contract they’re under will affect that. When did you last revise your contract and what process do you have in place to change it? Times change, and the technology changes with it. You need to be able to adapt to survive. A 10-year contract can be gold or a golden noose depending on what transpires in the interim.
You need to lower the bottom line without lowering the stability of the relationship with your client. You can do this by standardizing service (lowering the overall cost to operate by scoping the process), charging a premium (raise the cost of the service in order to make the ratio more favorable), or reducing overhead (lowering the cost of the service without impacting clients). Which one is practical is predicated on knowing what makes a client profitable.
Measuring Profitability
What makes a client profitable? If you can’t answer this with data, you’re just lying to yourself. Feelings and intuition can change, but data doesn’t (only its interpretation changes).
