Entrepreneurs often judge their clients based on at least four key standards: profitability, stability, vulnerability, and future company potential. Let’s take a deeper look at how you evaluate clients on many of these criteria:
1.Profitability
This is by far the most essential element because it affects your profit margin. This criterion must provide you with information on how profitable a certain client is on a monthly, weekly, or even daily basis in order to be truly valuable. You must decide whether or not such a project you are working on for a client is profitable. That’s why recognizing your overhead costs is so important.
You have to know which clients are now the most profitable, the least profitable, and the ones with whom you are losing money. An A-rated client, for example, would be highly lucrative; a B-rated client would be average; a C-rated client would be below average, and a D-rated client would be currently unprofitable. The aim would be to transform the Cs and Ds into Bs and As. This can all be obtained by increasing your efficiency in serving them, charging them more money, or a mix of both. If you can’t perform any of those three things, you should concentrate on finding new clients to replace them. But don’t hurry into this one.
2.Stability
A steady client who is rather below average in immediate profitability may be more useful than a one-shot client who is classified B, or even A. These are basic accounts that allow you to fulfill vital expenses and smooth out the ups and downs in your business.
Consider how stable each of your customers is. Clients that receive an A or B on your stability scale are obviously more valuable than those who score a C or D. A client’s dependability in making payments too is part of their stability. On the stability scale, a client who would be beneficial if he or she paid on time but doesn’t even would be rated very low. When you combine the stability and profitability evaluations, you can see that a picture starts to emerge. A client who obtains a B in both profitability and stability is incredibly lucrative.
3.Vulnerability
What happens if a client cancels? How can this affect the majority of your business? Advertising agencies and other professionally handled firms are notorious for winning large accounts and then hiring up to handle them. They may have to lay off a fourth—or potentially half—of their workers if one of their clients cancels. Of fact, several occupations are set up in this way that you can only follow the regulations. The easier it is to operate your firm, therefore, the more stable your consumers are.
More clients spending proportionately less of your total volume is actually preferable. Many successful business people have a rule that no single client can account for more than a precise amount of their overall revenue. They are able to control their vulnerability in this method. It’s a good idea to grade clients based on the level of vulnerability they generate for your company, regardless of how you set your standards. The lower the client’s rating, the more insecure you are. The more fickle your customer is, the less stable your firm is at any one point.
4.Potential
How much complete potential do you see in each client’s development? It’s rarely a decent idea to keep a costly client in the hopes that they may become wealthy in the future. It virtually never works that way, and waiting for them to turn the corner can lead to business failure. Nonetheless, some little clients have the room to improve into significant clients, and you may be able to move into the stable column with a little cultivation of clients who have done business with you on a sporadic basis. Nonetheless, there may be clients who have been constant for many years and would soon become significantly less so according to their changing needs.
You will rate the potential of all your clients to gain a thorough view of your overall clientele. Being realistic is vital when constructing this criterion. Don’t judge them based on how much business you think they’re capable of conducting with you; instead, consider how much business you can reasonably expect to sell them in the coming days. Those four elements are important significant by most businesses when reviewing their current clientele. Take into account additional aspects such as:
The suitability of such a client to your business’s skills
What role should a client play in your cash flow?
The notoriety of a client in the marketplace
You can put up a composite picture of each of your clients and come up with a total rating for them once you’ve ranked them in all the areas you consider relevant. You can also know straight away since you’re contacting the correct type of clientele. When you’ve already built a profile of the ideal client for your business and reviewed your current clientele, you may need to make drastic changes to bring what’s really closer to what you’d like to see.
It takes far more than researching for and selling the right kind of prospects to build the right kind of clients. It’s a never-ending process of really well your internal operations, establishing which types of clients you’re most equipped to serve, and eventually expanded your client base. If you achieve all of those things, you can develop a long and predictable clientele that will bring long security.