Account Balance: Building The Perfect Portfolio
When Steve Altman first joined his family’s cleaning company in Youngstown, Ohio, he noticed something alarming about a certain customer: That one customer was responsible for more than 30 percent of the company’s sales. While grateful for the steady business of a good client, Altman also worried that such a large account might compromise his company’s future.
“You lose a customer like that and all of a sudden you’ve lost half your profit margin,” he says.
Today Altman is president and CEO of his family’s original business, All-Pro Cleaning Services, Inc., and also of spin-offs Youngstown Cleaning Company and Youngstown Window Cleaning Company. And he has a rule for all three businesses: His largest customer shouldn’t control more than five percent of the company’s sales.
Experts say that while different customer ratios will work for different companies, the principle behind Altman’s rule can be a vital one for building service contractors. Maintaining a mix of small, medium and large accounts, they say, can offer stability along with the opportunity for growth.
Starting small, growing bigger
A BSC who is just starting out often takes on the least lucrative jobs, just to build a client base. This is not necessarily a bad strategy, and some industry observers say it’s even essential for success. In fact, notes Dr. Ron Cohn, a senior consultant for Ralston Consulting in Salt Lake City, small clients provide both a base and a special, value-added benefit: word-of-mouth advertising.
“It’s smart to have more small clients when your business is small,” he says, “because if you have three clients they can talk to nine potential clients, and so on.”
As a business expands, though, it should redefine what constitutes a small account.
“As you grow larger,” explains Cohn, “the size of your contracts should grow commensurate with the size of your business.”
Altman says that his company culls its account list every 12 to 15 months, sometimes dropping the smallest among his customers to make room for a larger client.
No matter the size, though, the “safety in numbers” benefit that small accounts bring does reach a point of diminishing return.
“The more sites you have, the more site supervisors you need, because there’s kind of a maximum on how many sites a manager can supervise,” says Cohn. “So as you grow larger you want to consolidate so you do less running around, because the less running around you do, the easier it is for you to have all of your equipment in a single place.”
Enter the larger client. “It costs the same for me to manage an account that’s $300 versus one that’s $5,000 a month,” says Altman. “It’s bigger in scale, sure, but I treat all my accounts the same. I still have the same operation issues.”
“Small weekly contracts are hard to staff and service, and they eat into your profit. I would rather focus on mid- to large-sized accounts,” says Terry Woodley, vice president of Woodley Building Maintenance in Kansas City, Mo. “The profit margins are narrower, but they add credibility and allow you to reinvest and grow your company.”
The biggest accounts can be thought of as whales, according to Tom Searcy, founder and president of The Whale Hunters, a sales process development and training company based in Indianapolis.
“Small accounts are your bread and butter,” he explains, “and medium accounts typically represent five times the size of your average account. A whale is an account that is 10 to 20 times the size of your average account.”
Size isn’t the only thing that separates whales from the rest of a BSC’s account portfolio. One of the biggest advantages of landing a whale, says Searcy, is a freedom to expand that only a very large account can bring.
“A whale is what allows you to do something extraordinary,” he says. “You should look at your whale as the kind of an account that will grow your business above and beyond what the industry is growing.”
As profitable as they are, though, whales are hard to catch and keep.
“Your big customers are getting talked to weekly by competitors,” notes Woodley. “You can’t rest on your laurels. You’ve got to pay attention to that relationship.”
Mix and match marketing
Along with diversifying by size, some experts advise BSCs to consider their accounts by market sector. Gary Penrod, CEO and managing associate Gary Penrod & Associates, Inc., Hilton Head Island, S.C., says that the extent of a given market’s penetration can be important.
“Take the multi-tenant office building,” he says. “There’s probably an 85 percent to 90 percent penetration in that market sector because everybody does multi-tenant office buildings.”
In contrast, Penrod says there may be more opportunity for a BSC to find larger clients in the heavy-industry and educational markets where there is likely much less competition.
In the end — and from the start — building an account portfolio is a matter of preference, says Penrod. A BSC can specialize or generalize. Can focus on larger accounts or manage many smaller ones.
“A mix can be good,” Penrod sums up, “but really, there’s no right or wrong answer. There’s only a direction.”
Mary Erpenbach is a freelance writer in Rockford, Ill.