Recently I heard a business owner bragging that his 15 year old company still serves their first client. That sounds pretty good. That statement implies that the business has high levels of customer satisfaction, repeat business, and referrals.
For some reason I started to reflect on my early years in business. Frankly, I wouldn’t want to still have the first client we were able to attract when my first business started out. If memory serves correctly, we made two cents an hour on that project! When I share that story in speeches for owners of startup companies, they laugh. But then it is interesting to watch their faces as I ask if they even know how much money they make (or lose) on each account. At least we knew we only made two cents an hour so we could change what we were doing!
That reflection caused me to have another conversation with that owner of the 15 year old business. Just out of curiosity I wondered if they had some magic sauce and had generated a solid profit from their first client’s first project and if subsequent requests from that client have worked out well too.
It turned out that, like the majority of owners of startup companies, they hadn’t analyzed how much money they had gained/lost from their first client 15 years ago. And unbelievably, they still didn’t know. Until 2008, their overall net profit seemed strong enough so they hadn’t drilled deeper to really look at client-specific or service-specific gross profit. Yikes! Talk about a ticking time bomb!
I heard from this guy again. Keeping the initial client hadn’t resulted in the many referrals he had hoped that it would. Plus it turns out that the client is rather unappreciative and takes his company for granted. But the worst part (readers may find this very hard to believe) is that the average gross profit generated from this client is – 300%!
That means that for every $1 this particular client pays, the company spends $4 to provide the service and then has to cover all of the operating costs without the benefit of gross profit to cover it and has to make up the difference from higher prices charged to other clients.
Your situation may be less dramatic, but if you are not changing the terms and expectations of long term clients that generate below a minimally acceptable gross profit level, you too could be bragging about retaining clients that no one in their right mind would want.
Known as The Growth Strategist®, Aldonna Ambler built and grew a suite of companies to help midsized B2B companies achieve accelerated growth with sustained profitability® A Certified Speaking Professional (CSP), Ambler has addressed over 2000 audiences and hosted a syndicated online talk show about growth strategies for 9 years. As a growth financing intermediary, Ambler raised over $1 Bil dollars for midsized companies. The winner of over 2 dozen prestigious national and statewide "entrepreneur of the year" awards, Ambler is available to speak about “profitable growth during any economy” and/or serve on the board of a growth-oriented privately-held company.