How Much Do Bottom-Half Accounts Hurt Bottom-Line Profits?
In many well‐run companies, a common focus is on the ‘top’ accounts in terms of volume and profitability. While this analysis is very important, a less common (but possibly just as important) concept is analysis of the bottom 50 percent of accounts (again, in terms of both volume and profitability).
You will often find (particularly in the building services field) that many of these accounts are actually costing your company money. In other words, you are paying to work.
Finding these ‘problem’ accounts begins with a ranking of the top and bottom accounts. For the top accounts, use the data to improve the high volume but low profitability jobs. In turn, use the profitability data to incentivize your salespeople to target similar accounts.
Keeping in mind the 80/20 rule (80 percent of your profits come from 20 percent of your accounts), one lesser‐known statistic is that in many cases, approximately 105 percent of your profit comes from the top 50 percent of your accounts. Likewise, as noted above, the bottom 50 percent are actually losing the company money (or at best breaking even).
Identifying and implementing a program to improve the margin on these accounts then becomes necessary. In many cases, accounts that are costing money can be brought back ‘into the black’ through a multi‐step, disciplined program that could consist of the following:
1. Address the customer directly, asking for a rate adjustment. See the GC resources on ‘Rate Adjustments’ for more detailed information
2. If that doesn't, reengineer your job to ensure you are just performing the specifications — and no services are provided above the specifications. (In my experience I found that going above the specs without additional compensation is much more prevalent than most people think). Once you identify ‘free work’, proceed back to the customer and acquaint them with the "freebies" they have been receiving – for whatever reason – and try to sell them on keeping the services in our specifications but paying for them
3. If that doesn't work, ask the customer for additional "same‐store sales" – washing the windows, providing the paper, day staff, special cleaning projects, etc.
4. If that doesn't work, see if we can sell the account to a smaller contractor that might be able to make money with less overhead than us
5. If that doesn't work, look at reengineering the whole account to make one last attempt at ensuring your labor is efficiently deployed
6. If that doesn't work, go to the customer and explain to them that you're going to provide the needed services for three months (and see if they can give us a price increase to justify it)
7. If none of these work, proceed back to the customer and tell them that there will be a price increase in 30 days. If they do not agree to it, then we would terminate the account
Keep in mind that when terminating an account, make sure to be upfront with the customer – make sure they understand why. Also, make sure that the service in the last 30 days is as good as we can do.
Specifically, I recommend delivering the keys in person, making sure the restrooms are stocked, floors and restrooms are clean, etc. Shake their hands and wish them good luck – Our goal is to leave them with the impression that we wanted a price increase and couldn’t get it, but the level of service and response were excellent.
The above procedure should be tailored for your specific situation (and of course regularly reviewed to find improvements). However, this is a proactive approach on internal improvements within our own company that's under our control. This process should be ongoing, as you will never be finished. However, your margin can continue to increase as you push the various initiatives.
Barnett (Barney) Gershen is the founder and CEO of Gershen Consulting LLC in Houston, Texas. Since 2005, Gershen Consulting has specialized in providing industry specific advisory, recruiting, and investing services to clients across the country. He can be reached at email@example.com.