Finding Hidden Profits in Your Customer Base

Welcome to the first edition of "Beyond Revenue," where we help service businesses make more money without working themselves to death.

At the end of this, you'll have heard how my client was able to double his take-home pay by making some very straightforward changes. And I'll show you how to do this for your own business with the simple tool I'll give to you for free.

But first:

Let me tell you about John, who runs a facilities business and wanted to double what he takes home.

John's Story: "I Need More Sales... Or Do I?"

John has a good business - £1M in yearly sales with about 40% left after direct costs i.e. "the margin". He takes home around £100K per year, but wanted to bump that up to £200K.

Like most business owners, his first thought was: "I need to find more customers!"

When we looked at the numbers together, that path seemed rough:

• At the current margin of 40%, he'd need an extra £325K in sales (33% more business)
• More staff, more vans, more equipment
• More headaches, more stress.

The Better Path: Improve Your Margins

We figured out that if John could bump his overall margin from 40% to 48%, he'd only need an extra £75K in sales to reach his £200K income goal.

That's almost an 80% reduction in the extra sales we thought he needed at first.

But an 8% improvement wasn't going to be easy.

We decided the first point of focus should consider how profitable each of his customers were to see if any improvements could be made:

Step 1: Figure Out Your Cost Per Visit

Before looking at individual customers, we needed to know how much each service visit actually costs John's business.

We added up all his direct costs for the year:

• Staff wages for engineers and field staff
• Vehicle costs (fuel, maintenance, insurance)
• Tools and equipment costs
• Materials and parts used
• Uniform and PPE

Then we divided that total by the number of service visits his team made in a year.

The result = an average cost of £41 to visit each customer.

Now, there are more complex ways to calculate this (factoring in travel time, visit length, etc.), but this average gave us a solid starting point without getting bogged down in details. And if you're already tracking profitability by job or project, that's great!

Step 2: Looking at Profitability Customer by Customer

With our cost per visit figure, we could now see how each customer stacked up:

This showed us something interesting: Customer A and Customer D were John's highest revenue customers (£750 and £800), but they were among his least profitable!

When I pointed this out, John admitted that he'd been reluctant to quote higher prices to these "big" customers for fear of losing them to competitors. He'd been charging them less per visit thinking he needed to discount to keep their business.

Meanwhile, his smaller Customers B and E were actually his most profitable at 46% margin because he was charging more per visit without even realising it.

What John Did:

1. He raised prices for Customer A and D when their contracts came up for renewal
2. He found more customers like B and E (who pay more per visit)
3. He stopped making unnecessary visits that weren't in the contract
4. For extra visits, he made sure the money per visit was high enough to hit target

Through this customer profitability analysis, John identified a clear path to double his income. He's now working on a two-part strategy:

1. Gradually repricing his less profitable customers as their contracts come up for renewal. This narrows the gap between his current margin of 40%, and his target margin of 48%
2. Improving operational efficiency by delivering the work for a lower cost (we'll cover this on another day.) This will close any gap remaining where the pricing activities don't quite reach the target.

Because many of his customers are on fixed-term contracts, it will take around two years to fully implement these changes. Not all customers will accept the new pricing structure, and John knows he needs to be careful not to disrupt his stable revenue base.

But with this systematic approach, he now has a realistic plan to reach his personal income goal within two years - without the stress of chasing endless new business.

🛠️ Do It Yourself: How to Analyse Your Customer Profitability

I've created a simple tool to help you do this analysis for your own business.

To get the workbook DM me/comment with "CUSTOMERS" and I'll get this over to you!

Step 1: Calculate Your Cost Per Visit

In the "Cost Per Visit" tab, you'll see a table like the one below. Input the relevant numbers from your accounts and in the box underneath it, add the actual number of all visits undertaken in the same (or similar period).

This will give you your average cost per visit.

Step 2: Analyse Customer Profitability

In the "Customer Analysis" tab, you'll see a table ready for your data. Enter the customer name, the total revenue for the last 12 months, and the total number of visits from your job system.

Hopefully you should have this data available. If you use an accounting system like Xero then the revenue figures are easily obtained from the reporting menu.

The blue columns will calculate the customer profitability for you. You don't need to enter anything in these boxes.

What To Look For In Your Results

After filling in 10-20 of your top customers, look for:

1. Wide margin variations - Are some customers much more profitable than others?
2. Revenue vs. Margin surprises - Are your highest revenue customers actually your least profitable?
3. Visit frequency issues - Are some customers getting too many visits for what they pay?
4. Revenue per visit patterns - What's a "good" figure for your business? Which customers fall below this?

Next Steps

For any customers with margins well below your average:

• Can you reduce visits?
• Can you increase their price at renewal?
• Should you gradually replace them with better-margin customers?

Remember: You don't need to dramatically change your business overnight. Even small improvements in your overall margin can significantly boost what you take home.

To get the customer profitability workbook comment here (or DM me) with "CUSTOMERS" and I'll get this over to you!

Until next time,

Dan

P.S: If you'd like help analysing your results or want to discuss whether margin improvement could be your growth breakthrough, drop me a DM anytime with "CFO"

About me:

I help business owners in the environmental, facilities, and trade sectors who:

• Need more than a year-end accountant
• Don’t want the cost or faff of a full-time FD
• Want to grow profitably and take home more money

I work alongside your existing accountant, not against them, helping you:

• Understand your numbers
• Make better financial decisions
• Build a business that supports your life goals

If your business turns over £750k–£20m, and you’re not seeing the reward you expected, let’s talk.

Book a free consultation here!