When March rolls around, it’s difficult to resist the urge to throw open the windows for some fresh air and declutter your belongings. There’s nothing like a basement or garage purge to make a homeowner feel lighter and more productive. It’s no wonder the idea of spring cleaning is universally appealing.
Then why don’t we approach our businesses the same way? Let’s take the opportunity to spring clean our customer roster — and continue doing it year-round.
Consider this example: It’s the end of landscape maintenance renewal season and spring work is about to commence, when you hear from a client that they aren’t going to renew your contract. You’ve been fired.
Before you grovel or beg to keep the work – or make price concessions to maintain the relationship – consider this vital question: Was it a profitable account in the first place?
My definition of a profitable landscape maintenance customer is one that meets the following requirements:
- Is loyal (100-percent retention);
- Delivers a targeted profit margin (gross-profit percent) for the service provided; and
- Purchases additional work (upsell percent).
Back to the example, was the client you lost profitable? If so, then losing the work is obviously a negative thing for your business. If not, then it’s not so bad. You can replace it with a more profitable account. If you’re not sure whether the client was profitable or not, then that’s the biggest problem of all. How many of your other accounts are you in jeopardy of losing? Or worse – how many are you currently losing money on?
Follow these three steps to ensure your landscape maintenance client relationships are squeaky clean moving forward.
Analyze the data.
Before you renew any accounts, understand each customer’s profitability. Start by collecting the following information for each customer going back at least three years, if possible:
Contract (see figure 1)
Upsells (see figure 2)
Keep in mind, you shouldn’t scrutinize only the low-profit relationships. It’s important to address high-profit relationships as well. If you’re making far above your target margin on any given account, then you’re at risk of losing that work to a lower-priced competitor.
Monitor account activity.
While it’s the account manager’s responsibility to oversee the relationship, it’s your responsibility as an owner or executive to oversee your account manager’s activity. Make sure to monitor the activities that drive relationship profitability, including seeking renewals, doing site inspections, and proposing upsells. A simple report will provide the information you need to work with your account manager effectively (see figure 3). This report should include:
The final step is taking action to manage the relationship profitably. Use the information you’ve gathered about each account and adjust the price or scope accordingly, or consider letting a customer go. Managing profitability account by account is essential to managing your net profits, and dropping unprofitable clients will make room for selling more lucrative work.
Unprofitable relationships hurt your margins, but they also hurt your morale. Letting go of a customer may sound like a difficult decision--and it is--but I can assure you your people will thank you for purging that kind of customer.
Adopting a spring-cleaning mentality when it comes to client relationships will ensure you’re working with customers who appreciate your work and respect your need to make a profit. And there’s no better time of year to start than now!
*This article was originally published in Green Industry Pros.
If you liked this blog post, you may want to read about profitable pricing in our article, "Key steps to pricing your work profitably."