Today I want to talk to you about segmentation. What does segmentation mean? Well, it’s coming to the end of this year (2018) now and 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, to see 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 actually wasn’t that profitable.
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, 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 put all 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.
And what you’ll find is that if you apply a Pareto Law, you’ll find that 80% of your profit & 80% of your revenue is coming from 20% of your clients.
And they’re the absolute cream of the cream. They’re the ones that you should look after, and nurture and develop relationships with because they will give you repeat business 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 segmentation 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, and 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.
Do you have a lengthy business plan and never look at it or maybe you have no plan at all? Many business owners don’t manage their company strategically, know what to focus on or measure daily, to have complete clarity and control.
If you would like to manage your business on a single page, access our tool here to get started: tendo-uk.com/plan
