If you’re not making at least 10% profit on a client, you have to ask yourself, why are these people why is this business still a clients? Now, there may be reasons why an unprofitable client — even a client that you’re paying for the privilege of doing the work — is worth keeping. They may be a great referral source.

But you have to make that decision consciously. You have to be intentional about that decision. And, by the way, and I know this is not going to surprise you, they can’t all be less than 10% profit. So profitability by client by month, by quarter, and annually.

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Hey, everybody.
Drew McLellan here from Agency Management Institute this week, coming to you
from beautiful Navarre, Florida, right in the panhandle.
We are here with a peer group, this week, and it has been really lovely.
Of course, you can see the ocean right behind us.
So not a bad setting for a meeting.
When we bring agency owners together for our live peer groups,
they have to make a bunch of financial reports.
They have to show us the numbers.
And one of the numbers that they need to show us every meeting
is their profitability by client.
And why this matters is because
for most agencies, when you're not paying attention to this metric,
the painful truth is many times you are doing work for free.
In fact,
sometimes you are paying for the privilege of doing work for a particular client.
So here's the metric, sort of the floor of that metric for you.
First of all, I want you to start looking at profitability
by client by month, by quarter and by year.
By month and quarter it's going to be very erratic.
It's going to fluctuate. You know how clients are.
But your goal is that the floor for profitability by client is 10%.
If you're not making at least 10% profit on a client, you have to ask yourself,
why are these why are these people why is this business still a client?
Now, there may be reasons why an unprofitable client — even a client
that you're paying for the privilege of doing the work — is worth keeping.
They may be a great referral source.
They may be a marquee name in your niche that really gives you credibility.
But you have to make that decision consciously.
You have to be intentional about that decision.
And, by the way,
and I know
this is not going to surprise you, they can't all be less than 10% profit.
So profitability by client by month, by quarter and annually.
And then every quarter and every year you need to really look at the clients
that are less than 10% profitable and ask yourself,
and maybe this is a conversation you have with your leadership team.
Ask yourself why are they still a client?
And if you can't answer that question, then give yourself the homework
assignment of: I have three months to elevate their profitability
to 10% or above, or I have to do something different about this client.
We have to resign this client.
We have to increase rates, whatever, whatever it is, whatever the fix is
to get them to ten.
So less than ten is unacceptable for you,
for your team, for your business, for your profitability.
Okay? Then go do the math.
Go do the math and start holding yourself accountable to that metric.
See you next week.

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