Pockets of profitability

Finding Pockets of ProfitabilitySCORE

Jeanne [email protected]

RoadMap Marketingwww.RoadMapMarketing.com

Presented by:

http://www.RoadMapMarketing.com/

Agenda

• Why should you care?• Case Study• 5 Simple Steps to Create an Accounting Knowledge

Center• Resources• Your Questions

Copyright 2010 RoadMap Marketing LLC


Your feelings about tax prep


All Roads Do Not Lead To Profitable Growth

All dollars are not green

It’s 4x easier to sell to an

existing customer than to

acquire one

The 80/20 rule applies to customers

and products

53% of owners don’t track customer retention

81% of owners don’t track profits by markets

Most owners don’t track profits by customer or

product

Source: SunTrust survey of business owners

The Value of Your Customers

• They cost less.• They spend more.• They can be your best sales force.• They can provide new ideas for services and

products.• They are more profitable.


A 5% increase in customer retention yields an increase in profits of 25%-100%.


Your accounting system is a gold mine


Key Questions you can answer:

• What market segments or customer groups are most profitable and which are the most price sensitive?

• Who are your company’s most profitable customers? And which customers actually cost you money?

• What are your company’s most profitable products and/or services? Which are your loss leaders?

• Which customers, products and services offer you the greatest future value?

Studies indicate over 50% of customers do NOT generate sufficient profits to sustain operations.

Case Study


Profit and Loss Statement


Income:

Retainer $ 25,000

Hourly Charges 95,000

Total Income 120,000

Expenses:

Labor 55,000

Rent 25,000

Supplies, etc. 15,000

Taxes 5,000

Total Expenses

100,000

Net Income $ 20,000

Current Situation - Finance


Current Situation - Marketing



Dentist30%

Vets40%

Other30%

Revenue by Market Segment

Den-tist

83%

Vets2%

Other

15%

Profit Contribution by Market Segment

Which Market Segments?

Set up “Customer Type” in

QuickBooks by Market Segment


IT Support61%

Web Hosting29% Security

11%

Revenue by Service Type

IT Support44%

Web Hosting23%

Security34%

Profit Contribution by Service Type

Structure QuickBooks to align expenses

with income

Which Products/Services?


“Fire” unprofitable customers

-30%-20%-10%

0%10%20%30%40%50%60%

Potomac Physicians

Riley and Asso.

Capital Medical Group

Dr. Sacorro

Pediatric Orthodon-

tist

Chen and Asso.

Profit Margin By Customer

Link expenses to each client

Which Customers?

5 Simple Steps

1. Use Accounting History to Create Meaningful Customer Groups.

2. Start rating and tracking your marketing efforts and customer loyalty.

3. Decide on Product and/or Service Groupings.4. Assign direct costs to customers and jobs to track

profitability. 5. Use Customer, Product or Service Level Financial

Reports To Focus On Pockets of Profitability.


Step 1: Use Accounting History to Create Meaningful Customer Groups


Step 2: Start rating and tracking your marketing efforts and customer loyalty



Step 3: Decide on Product and/or Service Groupings

Step 4: Assign direct costs to customers and jobs to track profits


Step 5: Use Customer, Product or Service Level Financial Reports



Quickbooks Company Snapshot

Example of Revised P&L


Client #1Dr. Smiles

Client #2Dr. Grins

Client #3 Dr. Paws

Client #4Dr. Tails Others… TOTAL

Project#1 Project #1

Project #2 Total Project #1

Project #1

Income

IT Support $15,000 $36,000 $ 9,000 $60,000

Web Hosting $12,000 $12,000 $12,000 $16,000 40,000

Security $ 9,000 $ 9,000 $11,000 20,000

Total Income 15,000 12,000 $ 9,000 $21,000 $12,000 $36,000 $36,000 120,000

Expenses

Labor 5,250 3,600 1,800 5,400 7,440 18,720 18,190 55,000

Rent 2,386 1,636 818 2,455 3,382 8,509 8,268 25,000

Supplies, etc. 1,432 982 491 1,473 2,029 5,105 4,961 15,000

Taxes 477 327 164 491 676 1,702 1,654 5,000

Total Expenses 9,545 6,545 3,273 9,818 13,527 34,036 33,073 100,000

Net Income $5,455 $5,455 $5,727 $11,182 $(1,527) $1,964 $2,927 $20,000

Profit Margin (%) 36% 45% 64% 53% (13%) 5% 8% 17%

Establish benchmarks


Extracting the Gold


• Cut or convert unprofitable products and services

• Focus your marketing $ on those segments where you get the most gains

• Look at Customer Lifetime value


Up-sell, Cross-sell, Re-sell

Up-Sell



High

Medium

Low

Leve

l of

Ser

vice

IT Services Security

Service Offering

On-call

Proactive, priorityService

Scheduled calls

Security software and monitoring

Up

sell

Up-Sell


Definition: Presenting the customer with more expensive items, upgrades or add-ons to make a more profitable sale.

Sale Item Up-sell item(s)

Restaurant Food Hors d’oeuvre, dessert, wine

Appliance Extended warranty

Computer Carrying case, mouse, extra storage

Vehicle Luxury finishes

Camera Tripod, filters, cleaner

Tax filing Quarterly reports, estimates

Cross-Sell



High

Medium

Low

Leve

l of

Ser

vice


Service Offering

On-call


Scheduled calls


Cross-sell

Cross-sell

Definition: Selling an additional product or service to an existing customer


Product/Service Cross-sell

Tax audit Book-keeping

Web Design Copy writing

Tents Hiking footgear

Cookware Cooking mixes

Re-Sell



High

Medium

Low

Leve

l of

Ser

vice


Service Offering

On-call


Scheduled calls


Re-Sell

Re-sell

Definition: structuring sales and offers to encourage and reward repeat or quantity purchases• Frequent buyer coupons• Preferred customer card with regular discounts and offers• Increased level of personalized customer service• Quantity discounts• Free add-ons (such as shipping, delivery)• Participation in customer council; advance notification of events and

new technologies


Next Stepswww.RoadMapMarketing.com

1) DIY: Get this presentation, article and worksheet on Pockets of Profitability:under Sign Up for ToolKitand get a SCORE counselor

2) Tools: Dashboards and other resources.

3) Hands-on Help: References for training and direct assistance



Let’s keep up the conversation:• RoadMap Marketing blog• @RoadMapMarketin• RoadMap MarketingUpcoming SCORE webinars:• April 22: Low Cost/No Cost Marketing• April 29: Savvy Social Media


Jeanne [email protected] Marketingwww.RoadMapMarketing.com(202) 257-0663


Business

Pockets of profitability