Take a look at just about any “Top 100” list of companies.
If you get a bit creative with a highlighter, you’ll find that almost 40% of the companies who chased revenues, ended up with declining profits. So let me ask you a question: When revenues grow but profits don’t, is that good or bad for your business?
There are always exceptions to the rule – large projects, for example, that require significant investments up front. But for most businesses, it’s a sure sign that you’re chasing market share at the expense of the profits you need to grow your business the right way, by having the cash flow you need to invest in people, technology, equipment, facilities, market expansion, or acquisitions.
In my latest book, I share several case studies of companies who DECREASED revenues and INCREASED profits as a result of focusing on the right customers where they could add value rather than discount to get more volume. Now, in a scenario where you have large fixed costs to cover, I’m still for volume… just not at any price.
So what’s the solution? Get a very clear understanding of who your ideal customers are – not the “big” ones, not the “blue chip” ones, but the ones that are highly profitable and keeping you in business. Next, get a very clear understanding of who your vampire customers are – they are the ones that are quietly costing you a bundle. Then, train your teams to go and find more of your ideal customers, and stay away from potential vampires, by building the right types of “early warning” questions into your sales cycle. Lest you’re worrying that this takes a lot of time, money, and accounting know-how to figure out who’s a profitable “Ideal” customer and who’s a vampire, let me reassure you. You can do it with almost no accounting (save a good sense of your Receivables) in less than an afternoon, just by identifying behavioral elements that make some customers more profitable than others. You don’t have to be exact, you just need a good-enough sense of who’s who to take appropriate action. If you’d like some support to make it happen, either read Driver #2 starting on page 55 of my book, or reach out to me in person and I’ll be happy to share the details.