Consider a company, ABC Consulting Ltd, with ?¢‚Äö¬¨1M revenues per annum with 40 clients.
50% of ABC Consulting?¢‚Ǩ‚Ñ¢s revenue is from what it defines as Ideal Clients which consists of 10 clients. The company classes these clients as Ideal as ABC has greater expertise in the problem areas and can deliver with least risk, greatest success and thus greatest profitability.
In analysing ABC?¢‚Ǩ‚Ñ¢s projects to Ideal Clients, 10 clients, the company achieved 40% gross profit on those projects. Projects to Non-Ideal Clients were averaging 25% gross profit, to 30 clients requiring more time to manage.
The reduced margin was typically on projects outside ABC?¢‚Ǩ‚Ñ¢s strengths and risks were taken in lesser known areas of the project which caused some element of overrun.
Financial breakdown of the company?¢‚Ǩ‚Ñ¢s revenues and gross profit can be represented as follows:
|
Ideal Clients |
Non-Ideal Clients |
| Revenues ?¢‚Äö¬¨ |
?¢‚Äö¬¨500,000 |
?¢‚Äö¬¨500,000 |
| Number of Clients |
10 |
30 |
| Gross Profit % |
40% |
25% |
| Gross Profit ?¢‚Äö¬¨ |
?¢‚Äö¬¨200,000 |
?¢‚Äö¬¨125,000 |
In reviewing the table above it can be clearly seen that working with 10 Ideal Clients is producing almost twice the Gross Profit than dealing with the 30 Non-Ideal Clients.
If ABC were to transition their business to focus on Ideal Clients only this would allow them to be dealing with fewer clients to achieve similar Gross Margins.
If ABC were to win 10 more Ideal Clients then the total figures would be as follows:
|
Ideal Clients |
| Revenues ?¢‚Äö¬¨ |
?¢‚Äö¬¨1,000,000 |
| Number of Clients |
20 |
| Gross Profit % |
40% |
| Gross Profit ?¢‚Äö¬¨ |
?¢‚Äö¬¨400,000 |
According to the above example, for ABC Consulting the benefits are as follows:
?¢‚Ǩ¬¢ The basic financial value of focussing on their Ideal Client is ?¢‚Äö¬¨75,000 per annum gain to their Gross Profit.
?¢‚Ǩ¬¢ They are also dealing with fewer clients, which requires less time and resources.
?¢‚Ǩ¬¢ They are more focussed in their business sales and only chase very relevant projects and clients which now they are more likely to win due to their very evident and successful track record
?¢‚Ǩ¬¢ Due to their focus and resulting greater expertise, they are in a better position to deliver a higher value service to all their clients and thus charge more premium and value based fees.
Is you business ripe for such a change?
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