In a soft and uncertain economy, it’s important for BSCs to have a solid financial foundation. Increasing your net profit makes your business less vulnerable to economic ups and downs. Here are some fairly simple ways to give your bottom line a boost.

Fire bad customers
My experience is that many BSCs don’t know how to identify their best customers. They want more business — but any new business will do. Sit down early in the new year and rank your customers. I have two main criteria for ranking customers. My criteria are contributions to profitability and complaints. The more a customer contributes to profits and the less they complain the higher they are on my good customer meter.

A favorable rating should not be determined by how long you’ve had the account or even the size of the account. Instead, consider how promptly they pay and how much they complain.

Complaints and problems tie up your organization’s money. Consider the anatomy of the complaint process: First, there has to be someone you pay to take the complaint. That person usually hands the information off to a second individual you pay who assigns someone else to handle the problem. That individual calls on another person on the payroll to fix the problem, usually by performing some labor function. Then you pay wages to reverse the information flow back to the customer by explaining to everyone involved in the complaint what was done, by whom, the challenges involved and so on.

All of this is a huge waste of labor and resources. Customers who repeatedly, and often unnecessarily, clog your company with complaints are costing you dearly. Ask yourself why you keep these accounts.

Once you’ve identified the bottom 10 percent of your customers, fire them! Better yet, send them to your competitors. When you fire your worst accounts, one of two things will happen. Either you will end up making at least 10 percent more money with 10 percent less work (maybe more, depending on how big a nuisance the customer was) or the customer will reform and beg you to reconsider. When that happens, it’s time to raise your prices.

Raise your prices
As much as we long to believe it, price simply isn’t that big a factor in deciding who gets the business. In my experience, price is seldom the key driver. A study by Fortune magazine backs me up. According to Fortune, high pricing loses about 12 percent of sales. A variety of other reasons account for the remaining 88 percent.

Look at where you make the most money, both in terms of dollars and complaints. That’s your competitive niche. Now do more of the profitable business and consciously lose the rest!

We’ve had a number of BSC companies we work with who have a great niche with net profits of 20 to 40 percent. If you ask them they’ll admit that’s not their actual net, frequently because of what I call a vanity project. Vanity projects are business you keep for reasons other than making money.

A company’s core strength may be cleaning two-story suburban office complexes. Because they want to look like the big boys, they also clean a multi story high-rise office downtown that generates nothing but complaints and nets them nearly nothing. That’s a vanity project. They can afford it because they subsidize the bad business with profits from their niche.

Selling higher
Your job as a business person is to make it clear that you and your company are not generic. Avoid what I call the “one-size-fits-all” differentiation strategy. It usually goes something like this: “We are the best cleaner in the area.” By the time potential customers have reviewed eight or nine bids that all make the same claim, they realize either the contractors are lying or they don’t know the market.

Some easy ways to differentiate yourself from everyone else include identifying the kind of accounts you handle, the geography of where you work, the process you use to clean, etc. Specifically identify things you do differently from or better than your competitors. Do you use high- filtration vacuums? What types of training do you offer? How do you promote workplace safety? Are your workers different?

Be sure to use look at your business through your customers’ eyes. What are their areas of concern and how does your company specifically address those issues?

Forget Economics 101
Somewhere along the way your professors may have taught you if you cut prices you can grow volume. Forget it. Too many BSCs think they have to match or beat prices and cut prices to survive. In the process, they’re taking money from good accounts and using it to support ruinous ones.

A price cut of 10 percent means you must double your current sales. In other words, you’re doing twice the work just to get the same amount of money you made at half the volume. It’s a recipe for disaster.

Sell what you do well. Price excellent service based on value to the customers. Don’t be afraid to show your worst accounts the door. Find out why your best customers came to you and why they stay with you. That’s your market niche. When you concentrate your efforts on those kinds of accounts your profit picture will improve.

John Walker is a regular Contracting Profits columnist. He is a veteran building service contractor; owner of ManageMen consulting services, Salt Lake City; and founder of Janitor University, a hands-on cleaning management training program.




POSTED ON: 1/1/2003