Pockets of profitability
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This document outlines steps for businesses to identify profitable customers, products, and services using accounting data. It presents a case study of a company that analyzed its financial reports to determine the most profitable market segments and customers. The document then describes a 5-step process to create meaningful customer groups, track marketing efforts, group products/services, assign costs, and generate reports. These steps aim to help businesses focus their resources on "pockets of profitability" and increase overall profits.
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Pockets of profitability
- 1. Finding Pockets of ProfitabilitySCORE Presented by: Jeanne Rossomme jeanne@RoadMapMarketing.com RoadMap Marketing www.RoadMapMarketing.com
- 2. Agenda Why should you care? Case Study 5 Simple Steps to Create an Accounting Knowledge Center Resources Your Questions Copyright 2010 RoadMap Marketing LLC
- 3. Your feelings about tax prep Copyright 2010 RoadMap Marketing LLC
- 4. 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 Copyright 2010 RoadMap Marketing LLC
- 5. 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. Copyright 2010 RoadMap Marketing LLC A 5% increase in customer retention yields an increase in profits of 25%-100%.
- 6. Your accounting system is a gold mine Copyright 2010 RoadMap Marketing LLC
- 7. 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? Copyright 2010 RoadMap Marketing LLC Studies indicate over 50% of customers do NOT generate sufficient profits to sustain operations.
- 8. Case Study Copyright 2010 RoadMap Marketing LLC
- 9. Profit and Loss Statement Copyright 2010 RoadMap Marketing LLC
- 10. Current Situation - Finance Copyright 2010 RoadMap Marketing LLC
- 11. Current Situation - Marketing Copyright 2010 RoadMap Marketing LLC
- 12. Which Market Segments? Set up “Customer Type” in QuickBooks by Market Segment Copyright 2010 RoadMap Marketing LLC
- 13. Structure QuickBooks to align expenses with income Copyright 2010 RoadMap Marketing LLC Which Products/Services?
- 14. Which Customers? “Fire” unprofitable customers Link expenses to each client Copyright 2010 RoadMap Marketing LLC
- 15. 5 Simple Steps Use Accounting History to Create Meaningful Customer Groups. Start rating and tracking your marketing efforts and customer loyalty. Decide on Product and/or Service Groupings. Assign direct costs to customers and jobs to track profitability. Use Customer, Product or Service Level Financial Reports To Focus On Pockets of Profitability. Copyright 2010 RoadMap Marketing LLC
- 16. Step 1: Use Accounting History to Create Meaningful Customer Groups Copyright 2010 RoadMap Marketing LLC
- 17. Step 2: Start rating and tracking your marketing efforts and customer loyalty Copyright 2010 RoadMap Marketing LLC
- 18. Step 3: Decide on Product and/or Service Groupings Copyright 2010 RoadMap Marketing LLC
- 19. Step 4: Assign direct costs to customers and jobs to track profits Copyright 2010 RoadMap Marketing LLC
- 20. Step 5: Use Customer, Product or Service Level Financial Reports Copyright 2010 RoadMap Marketing LLC
- 21. Quickbooks Company Snapshot Copyright 2010 RoadMap Marketing LLC
- 22. Example of Revised P&L Copyright 2010 RoadMap Marketing LLC
- 23. Establish benchmarks Copyright 2010 RoadMap Marketing LLC
- 25. Focus your marketing $ on those segments where you get the most gains
- 27. Up-Sell Copyright 2010 RoadMap Marketing LLC
- 28. Copyright 2010 RoadMap Marketing LLC Up sell Proactive, priority Service High Medium Level of Service Scheduled calls Security software and monitoring On-call Low IT Services Security Service Offering
- 29. Up-Sell Copyright 2010 RoadMap Marketing LLC Definition: Presenting the customer with more expensive items, upgrades or add-ons to make a more profitable sale.
- 30. Cross-Sell Copyright 2010 RoadMap Marketing LLC
- 31. Copyright 2010 RoadMap Marketing LLC Cross-sell Proactive, priority Service High Medium Level of Service Scheduled calls Security software and monitoring On-call Low IT Services Security Service Offering
- 32. Cross-sell Definition: Selling an additional product or service to an existing customer Copyright 2010 RoadMap Marketing LLC
- 33. Re-Sell Copyright 2010 RoadMap Marketing LLC
- 34. Copyright 2010 RoadMap Marketing LLC Re-Sell Proactive, priority Service High Medium Level of Service Scheduled calls Security software and monitoring On-call Low IT Services Security Service Offering
- 36. Preferred customer card with regular discounts and offers
- 37. Increased level of personalized customer service
- 39. Free add-ons (such as shipping, delivery)
- 40. Participation in customer council; advance notification of events and new technologiesCopyright 2010 RoadMap Marketing LLC
- 41. Next Stepswww.RoadMapMarketing.com DIY: Get this presentation, article and worksheet on Pockets of Profitability: under Sign Up for ToolKit and get a SCORE counselor Tools: Dashboards and other resources. Hands-on Help: References for training and direct assistance Copyright 2010 RoadMap Marketing LLC
- 42. Let’s keep up the conversation: RoadMap Marketing blog @RoadMapMarketin RoadMap Marketing Upcoming SCORE webinars: April 22: Low Cost/No Cost Marketing April 29: Savvy Social Media Copyright 2010 RoadMap Marketing LLC Jeanne Rossomme jeanne@RoadMapMarketing.com RoadMap Marketing www.RoadMapMarketing.com (202) 257-0663
Editor's Notes
- The State of Accounting AvoidanceWhat are your feelings when you need to work with your accounting system? Fear? Confusion? Dread? Disinterest? As a result most small business owners invest as little time, money and thought as possible into the accounting function. But we need to get over this angst for som every important reasons
- The first reason we should care is to step back and think about the simple fact that not all dollars are green! What does that mean? It means that some sales of certain products or to certain customers actually COST us money – meaning they are not profitable. And this is a very common problem. For example a recent survey shows that …
- Bookkeeping and accounting are generally viewed as “overhead” or non-revenue generating functions. But your accounting data is really the knowledge base of your company – the results of all of your company’s operations (good and bad) show up in the financials. Here you have a gold mine of information on customers, purchase habits and cycles - and the costs associated with delivering value to these customers. If your accounting database is designed properly, you can “drill down” into this untapped reservoir to uncover “pockets of profitability” (aka areas where you should focus your growth efforts). Properly structuring your accounting & financial reporting database can create a real strategic asset for your business.
- So by looking at our accounting data and structuring it correctly we can answer these important questions with the bottom fact being most glaring.
- By using the same grouping process as described above for customers, you can identify the groups of products and services to track. Again, it is best to keep it simple at the beginning with no more than 3 – 5 top categories and sub-categories within each group as necessary.
- Understand customer’s budgets and needs“Expense” is usually gauged with reference to the original product or service.Understand concerns or fears and upsell to address.Incent sales people to upsell.Use an assumptive manner – not pushy or apologetic.Describe benefits and how it addresses their needs.Hands-on demonstration where possible.Package deals on related products.
- Benefits:Increase incomeProtect the relationshipLeverage sales relationshipReduce finger-pointing
- Benefits:Increase incomeProtect the relationshipLeverage sales relationshipReduce finger-pointing