Client profitability - part 3, Who should stay? Who should go?
Excerpt from 'How to Wrestle an Octopus: an agency account manager's guide to pretty much everything'. Available now!
Just because you have clients, doesn’t mean you should keep all of them. Being able to assess and categorise your clients is the first step in figuring out which clients (or projects, or services) to keep and which ones that you need to say goodbye to.
Take a look at the PROFIT GRID below. You will see six sections and two axes. Your task is to take each one of your clients, along with each of the types of services that your agency offers (you may wish to create two separate charts) and plot each on the grid.
Let each axis guide you as to where you place your clients:
- Vertical (x) axis = Ease of Sale/Popularity. Literally, how easy is it to make a sale to each client, or how easy is it to sell each service into the marketplace? The harder the sale, the lower in the grid you place your marker; the easier the sale, the higher the marker.
- Horizontal (y) axis = Gross Profit (where gross profit = revenue minus costs of goods sold). Use this axis to plot how profitable each client or service is. The more profitable, the further to the right you will place your marker. Note that the zero point is some way along the x-axis. This is because (as you have just read), some clients and services are loss-leaders for your agency, and carry with it a low, zero, or negative profitability. Those with negative profitability will sit to the left of the zero line. Justifiable loss-leaders will sit higher in the grid, indicating those you will keep, whilst the ones in the grey zone you should seriously think of resigning.
- Loss leaders. These may be passion-projects, vanity clients, charity work, or bait. Whatever they are, there is sound logic behind keeping these clients/services on-board knowing that you have financial security through other, more profitable work.
- The drain. Clients and services in this section cost your agency money without any sound logic to keep them running. It’s time to kick these to the curb.
- Blood, sweat and tears. Low gross profit and a hard sell. These are clients or services in which you may invest a lot of time, money, and effort for low or no return – a time investment that would be much better spent elsewhere for higher gain.
- Attractors. These are clients or services for which getting the sale is easy, even though the return may be low. They could be ‘bread and butter’ clients that you’ve built a solid relationship with, and that you can rely on to keep the cash flowing. Or it may be a popular (low profit) service that you can use as a gateway to other, more profitable, services.
- Potential goldmine. These clients/services are a challenge to sell, but the gross profit is high, which makes them worth keeping. What can you do to push clients/services in this sector up into the Goldmine?
- Goldmine. A.k.a client nirvana. High profitability and easy to sell – every agency should want that! If you have any clients/services in this sector, try to figure out what the secret ingredients are, and then try to replicate that success.
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