The client is a speciality B2B manufacturing and wholesaler where demand is unpredictable and being out of stock is unacceptable. They’d lost one of their biggest clients two years ago, and it kind of freaked them out.
They’d been forced to compete on price, giving discounts and putting up with late and delayed payments. They’d put up with all sorts of abuse and made lots of effort on behalf of their “best customer”. And their “best customer” cut them lose when somebody else with a better price came along.
A year later they were making more money. More. Without the client they worked so hard to keep. They had lower gross revenues, but they had higher gross margins and profit. They were actually taking home more money for less work. They did get out an get more sales from other clients, but only because they had more time to spend to go out and get sales from other clients. All their time wasn’t being spent on just one client.
In hindsight, of course, it’s easy to say they should have cut that customer loose instead of being bled dry and then cut loose. Lesson learned for them – they now they look at more than just the revenue for every client, and they certainly look at the gross margin and return on investment for all of their stock and individual customers to figure out where they’re actually making their money. Which allows them to make intelligent decisions about where their opportunities really are instead of just guessing.
None of the maths is rocket science. It does take a little critical thinking. It just requires a little weekend reading, some thinking about your business model, and some scepticism and testing about about how that business model really works.
Two books I’d recommend to get you started (links to my Amazon store, just so you know):
p.s. The client they lost two years ago? The old client coming back to their higher margin items because the low-cost competitor’s inventory and delivery times suck. And they’re getting paid in a timely manner. So I guess the other lesson from this example is the advantage of keeping healthy, respectful boundaries about the value of the product or service you’re providing.
p.p.s. If you’re not a business owner, then think about what value you provide to the business or organization you belong to, then focus on doing that really really well.
Bernie works with small, medium (and sometimes) large companies, start-ups, and volunteer organizations to help them set a vision that is executable, effective, and to surround themselves with people who will help them succeed. I believe the workplace is a place to thrive, not just survive. Call me if you want help transforming your business.