Pruning Your Client Base
I remember our mindset when we launched Best Facility Services, a bootstrapped venture rich with naïve enthusiasm and low on cash flow— we had none. Any building was fair game for our janitorial services startup. Persistence and a few properties brought in from my co-founding partner eventually yielded some success. Before long, our client base “tree” began to sprout. At first, landing a new account was akin to adding another small branch to our sapling. But eventually, revenues began to build momentum, account managers were hired, office space was rented (almost 600 square feet!) and I finally started to draw a paycheck. We had a full-grown tree on our hands.
It didn’t take long for our business to find a successful rhythm. We were named to the Inc. 5000 list two years in a row, but more importantly, we had created a model for compensating key account managers, which was unique in our industry. We felt that by paying a percentage of gross profit produced from each building to the respective account manager, there would be a greater sense of ownership. What started out as a simple incentive system quickly turned into a philosophy. We knew we needed to attract (and retain) great talent to produce lasting business relationships. This required a tracking mechanism, one that could calculate gross profit on each account so that “retention commissions” could be paid out monthly. A simple Excel spreadsheet was created to accomplish this task, which also provided insight into the accounts’ financial value.
After a few reviews of our monthly report, I noticed some patterns emerging. There were certain accounts that consistently produced a higher percentage of gross profit than others. It seemed some of the branches on our client tree were withering, while others were a leafy green. Further investigation identified common criteria that would either contribute to, or hinder, the financial health of each account. It illuminated problems and suggested opportunities, and we began to recognize qualities common to those that were flourishing. Questioning account managers about the time invested into problem accounts revealed that in most cases, more time was spent on low-profit accounts than those that produced greater profit. There were additional considerations, as well. How much time is spent collecting money from these accounts? Do these accounts have any potential to produce in the future? What are our administrative costs in maintaining these accounts? It became evident that our client tree needed a little pruning in order for our profit to reach new heights.
Our system for pruning is simple, although our criteria for ranking and selecting these “bad branches” continue to evolve. We start by sending a letter to each client identified as “ripe for pruning,” announcing that higher billing rates are forthcoming (usually toward the end of the calendar year). Our clients can choose to accept the new rate, or we will accommodate a transition to another provider. The first year we did this, I was surprised (and in some cases disappointed) to see how many clients accepted the higher rate. Imagine the euphoria you would feel thinking you were firing an account manager, only to find out they just won’t leave!
Through this approach, low-profit accounts are transformed into profit producers, or they’re simply eliminated. Furthermore, our account managers have more time to maintain or pursue new accounts that provide greater financial benefit for them; the company realizes a higher gross-profit percentage overall; and our now-healthier bottom line is poised to reach new heights. Best of all, we are given improved ideas regarding target marketing, and are able to better identify prospects we need to beautify and fortify our client tree down the line. Looking back, this process has helped us achieve new measures of growth and success. Who knew all it took was a little pruning?
