Today I want to talk to you about segmentation. What does segmentation mean? Why should you segment your offering? Well, it’s coming to the end of this year (2018) now. One thing you should think about doing before you set off in the new year, is to really look long and hard at the products and services that you’re supplying and the customers that you’re working with. Identify which ones are profitable, and which ones aren’t.
Now I was chatting to a client this week who has just recently sacked off a big customer. A customer that was a large chunk of his revenue. But this particular customer was an absolute drain on time and energy. They really, really zapped his energy and the rest of the team’s energy. And actually, when they looked at the time spent serving this client versus the revenue generated, it wasn’t that profitable.
Creating a league table
So one thing that I’d like you to look at (it depends what bookkeeping system you’re on or depends what your accountant is using) but whichever way you do it, is to produce a league table of all the products and services that you supply. Find how much revenue you’ve generated across the year, what your costs of sale are, and what you pound notes and percentage profitability are and put them in descending order.
And do the same with your customers. So segment your customers, how much revenue they’ve generated, what your costs of sales are and what your pound notes and percentage profitability. And again, put them in descending order.
What you’ll find is that if you apply a Pareto Law, you’ll see that 80% of your profit & 80% of your revenue is coming from 20% of your clients.
These clients are the absolute cream of the cream. They’re the ones that you should look after, nurture and develop relationships with because they will give you repeat and referral business.
But the ones at the bottom of the league table are just not good calibre for you. So I want you to look at that segment and think long and hard about whether you want to retain those products and services or put the prices up (or take the costs out), and whether you want to retain those customers.
Start by looking at league table of which is quality and which isn’t. You can then start to make some decisive actions about what you do with those at the bottom of the league table.
So that’s a great tip for you. Have a great day and I look forward to catching up with you soon.
Related resources:
- Is it time for a client cull?
- What has San Francisco got to do with your business
- Don’t wait for it to happen, make it happen
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