I’ve recently been reading Islands of Profits in a Sea of Red Ink by Jonathan Byrnes …. The premise of the book is that we leave tons of profit on the table because we don’t pay attention and focus on what drives profitability from our clients.
It’s a pretty complicated book but the simplified version is you need to track the profitability of both your customers and product lines you have. Doing so will allow you to focus on the customers who bring real profits in and find ways of fixing or getting rid of the customers and product lines that lose money.
This week’s video is about what I call strategic marketing and some simple things you can do to turn the focus of your company and creating great customers you love to do business with that create above-average profits.
I recently read the book, “Islands of Profits in a Sea of Red Ink” by Jonathan Byrnes. The premise of this book is that we leave tons of profit on the table because we don’t pay attention and focus on what drives profitability from our clients.
It’s a pretty complicated book but the simplified version is you need to track the profitability both of your customers and the product lines you have. Now, doing so is going to allow you to focus on the customers who bring real profits and find ways of fixing or getting rid of the customers and the product lines that lose money.
And this week’s video is about what I call strategic marketing and some simple things you can do to turn the focus for your company about creating great customers you love to do business with that create above-average profits. How does that sound to you?
Now, the author says, about 40% of all business customers are losers. I would say, that’s probably true. In fact, I’m more of a proponent of the 80/20 rule which says 80% of your profits comes from 20% of your customers. So we wanna figure out who those 20% of our customers are and why those 80% of the profits come from this group of customers that we work with.
Here’s our 8 things you can do to focus on the right customers.
- Number one, do a profit and loss statement on your customers. Now, you wanna get close to this, you don’t wanna try to get it absolutely correct. 70% is close enough. We’re just trying to get a sense for who are our best customers from a profit point of view and who are our worst customers from a profit point of view. Just because someone does a lot of business with you doesn’t mean they are profitable customer or a highly profitable customer. They might be marginally profitable and you might find some smaller customers who are actually more profitable.
- Number two, you wanna find out all these great customers have in common. This is something that’s really important that you’re looking for commonality behind the great customers that you have because you wanna find more of those great customers.
- And the way you do that is number three is you put together a demographic list of what they all have in common. How big are they? Where are they? What type of industry are they in? All those sorts of demographic questions that most of us know about but very few of us actually spend the time to put together a list of what the right demographics are.
- Number four is you wanna do a psychographic analysis of what they have in common. Now, the psychographic analysis is, are they religious? Are they not religious? Do they play golf? Do they not play golf? What kind of a thought process do they have? Are they coachable? Are they not coachable? So sort of like what goes on between the ears that make somebody in common. What do they have that they all have in common? So you wanna start asking yourself, what about this person do I love to do business with?
- Number five is you wanna balance the commonalities to your business company values. So I’m hoping you put together values for your company with clarifying statements and you wanna start asking yourself, where do my best customers fit in with these values that I have? Now, you’re gonna find that your very best customers are making a lot of money that you’ve loved to do business with actually share most of the values that you have. That’s really a good thing. It makes it easy for you to work with. You don’t have to watch what you say. You don’t have to watch what you think. You’re not always walking on eggshells. You’ll probably get the same jokes and you’ll laugh at the same things which is really a kind of a cool thing and a cool way to do business in my opinion.
- So you wanna build a profile, what my friends at Hubspot call avatars of what your best customers look like. So what you wanna do is wanna put together a demographic profile of what those best customers are and you wanna put together a psychographic profile of who they are.
- So number seven is you wanna put your customers into four groups. I just do it A, B, C, and D ’cause it’s kind of easy.
- An A customer is somebody has great profits that is easy to work with.
- A B customer is somebody who has a great profits but is hard to work with.
- Now, the C is a customer who has mediocre profits, is easy to work with. Now, a lot of times, we’re gonna have A and C customers but we’re gonna try to get rid of the B customers because the people are hard to work with. When you really put the cost in of making a good relationship, it’s just too much work, it takes too much time. Now, you actually find that the Bs and Cs often switch in how profitable they really are.
- And then finally, there’s Ds which is the losers with mediocre profits and hard to work with. You absolutely, 100% of the time, never, never, never wanna work with a D customer. Even if they pick up a little bit of overhead in your company, it costs you a whole lot more than they’re actual worth.
- And finally, make sure your sales team only calls on the A group. Now, the thing is this takes incredible discipline. I know that every time I’ve run a sales operation, my sales people will wander around from the A customers. They often go from A to D ’cause the D customers are usually easy to get. The A customers are hard to get. They take a lot of work, they take a lot of strategy and I want you to figure out what is the strategy that you need to get that A group working with you on a regular basis.
So if you do these eight things, you’re gonna find your profits start to climb and you and your staff have more fun working with your customers.
So how does this sound to you? Why don’t you scroll down, leave a comment about your thoughts or about our method on strategic marketing. And while you’re at it, I have an eBook on Strategic Marketing which goes over these things in way higher detail and after you read the eBook, you’ll understand what you need to be doing in your company to figure out how you first identify what the A customer is or who the A customer is, and then only, only, only allow your sales staff to call on them.
Hey, this is Josh Patrick, you’re at The Sustainable Business. Thanks a lot for stopping by. I hope to see you back here really soon.