Let’s Grow: Year-round spring cleaning

May 15, 2018 -  By

It’s the end of renewal season, and spring work is about to commence. While sitting at your desk late in the day, you receive an email. The message is from a customer. It essentially says, “Thanks for your service, but you’re fired.” After considering some options, like begging or “getting a drink,” you might want to consider, “Is this good or bad news?” Certainly, in the short term, it feels like bad news. But is it?

Spring cleaning is a euphemism for clearing out the old to make room for the new. It’s a fresh start—a better and more profitable direction. In my last column, I discussed pricing your work to address overhead recovery and market conditions. In this column, I’ll discuss a method for customer spring cleaning year-round.

Back to that email. Let’s start with a simple question: Was the lost relationship a profitable one? Let’s define “profitable.” A profitable customer is loyal (100 percent retention), delivers a targeted profit margin for the services provided (gross profit percentage) and purchases additional work (upsell percentage).

Was this customer relationship profitable? If it was, then losing it is bad. If it wasn’t, then it’s not so bad. If you don’t know, then you have a bigger problem. And if you don’t know for this one customer, you have to wonder how many other customers might leave you one day or how many are merely revenue providers costing you more than they contribute. Here are three steps you might practice year-round to ensure your relationships are good ones.

Keep score

Before renewing any relationship, understand customer profitability. To do this, you need the information below—at a minimum. In the example below, the customer relationship appears to be profitable. It meets the three requirements: retention, margins and purchases. Keep in mind that you should not only address low-profit relationships, you should also address high-profit relationships. Relationships where you are making far above a target margin are also at risk from a lower-bid competitor.

Review monthly

The account manager is responsible for the relationship. To manage it, he or she must be on top of it. To ensure this is the case, you should monitor the activities that drive relationship profitability: renewals, site inspections and upselling. A simple report will provide the snapshot you need to work with your account manager. For example, it could list the number of site inspections planned and completed by month, along with actual and target dollar amounts for work proposed and sold.

Do spring cleaning

The final step is spring cleaning. Using data, you can now take the necessary actions to manage relationship profitability. I will discuss these specific steps in my next column.

Spring cleaning is essential to managing your net profits. Unprofitable relationships bleed your margins in many ways. As for the results of cleaning house, if it comes to “firing” a customer instead of them firing you, I can say your people will thank you for losing that kind of customer, and your cash flow will thank you as you open up the potential for selling more profitable work.

My philosophy has always been, “Work with people who appreciate your work and respect your need to make a profit.” The best and most honest relationships in life and business are profitable—for both parties.

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About the Author:

Kevin Kehoe, a longtime landscape industry consultant, is managing partner at Aspire Software.

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