Biggest Small Business Tax Mistakes- Issac O'Bannon
Why Your Biggest Client May Be Your Biggest Loss
Why Your Biggest Client May Be Your Biggest Loss - BQE Software
To help me understand the business processes of our customers, I often visit some and spend a day in their office learning about how they use our products and more importantly where we can make improvements to make their lives better. While I am there, I get to review their company file and share with them my expert analysis, primarily focusing on the successes and the bottle-necks.
Few years ago, I visited an engineering office using BillQuick to manage their business. Towards the end of my visit, I met with the partners of a firm. I asked them a simple question, “do you know who your best client is?” All three partners named the same client, XYZ Company. When I asked why, I was told that XYZ brings in the most new projects each year and a significant portion of the billing (nearly 40%) is from those projects.
After listening to their answers and the reasoning behind their choice, I asked, “what if I ask you to fire XYZ and not take any new project from that client? How would you feel?” I could see a big surprise in their eyes and total rejection of my idea. After some silence, one of the partners said, “Why would you say that?”
That is when I turned on the laptop and showed them a very interesting piece of data from BillQuick. The “effective rate” with XYZ was $28 per hour. So, basically the company was getting paid $28 per hour on an average when working for XYZ client. That rate was way below the ideal bill rate for the company. Then I showed them the effective rate from other clients. Most of them were above $100/hour with one client having an effective rate of $240/hour.
“Who is this client?” I asked. “You are obviously getting paid well by this client”. They told me that this is a new client and manages local schools. They were involved in building two new schools in the nearby towns. This was relatively a new for the company considering the focus was to work on residential projects only through local developers.
The problem with this BQE customer was that their biggest client was utilizing 70% of their staff hours while the fees paid were a fraction of that. The result was that they were averaging a very low effective rate. To make it worse, this big customer was keeping the company so busy that they did not have time to market their services to other clients, such as the one that build new schools.
On my advice, the customer started moving away from their XYZ client and started focusing on clients with high effective bill rate. The result was that in less than three years, the company’s revenue doubled while the overhead went up only 30%.
The moral of the story: your biggest client is not necessarily your best client. It is extremely critical to look at the effective bill rate for each client and focus your business development and marketing on those types of clients that net the highest effective bill rate. Products like BillQuick can provide the effective rate per client with the click of a button. Use it to grow your business.