In the last post, Who are your Top 20 Revenue Generators, I talked about the 80/20 rule and identifying the top 20% of customers (based on revenue). Revenue is a good starting point and it can help you understand who your biggest customers are. However, it's not the whole story. Profits are equally important, and a lot of people would argue that they are more important. You actually have to look at both to understand which of your customers deliver the highest value.

I was recently working with a client who was quite concerned about losing a high revenue customer. It was keeping him up at night. But, as we started to take a look at the profit generated by that customer, it became very clear that it actually wouldn't be that bad if the customer left. Sure, there would be an emotional loss and it would be tough on the team, but it would be better for the company in the long-run because that customer was costing more to service than they were giving the company in revenue. This happens much more often than people realize and/or acknowledge.

You really need to look at how much a customer brings in (Revenue) and how much of that you can keep (Profit) to understand their true value. Neither alone will do the trick.

The easiest way to get a really good understanding of which customers deliver the highest value and which deliver the least is to plot all of your customers on a 2 x 2 matrix like the one shown here. Each dot represents a customer and the ones in the top right hand quadrant are delivering the highest value (both highest revenue and highest profit).

You can easily create a chart like this once you know how much revenue each customer generates and how much profit you keep from each of those customers. Then, do the following.

Step 1: Use the Top Customer Identifier spreadsheet to track the revenue of each customer. Top Customer Identification.xls

Step 2: Add two additional columns. The first should list the profits generated by each customer and the second should be the % profit for each of those customers. Percent profit is the proportion of the revenue you get to keep after taking into consideration all of the costs needed to get that revenue (% profit = profit/revenue).

Step 3: Plot each customer on the Customer Revenue and Profit Matrix based on the revenue and profit they each represent. Best Customer Matrix.pdf

The customers who end up in the top right hand quadrant deliver the highest value while those in the bottom left hand quadrant deliver the least. Now that you know where each of your customers fits, you can make informed decisions about what to do with the customers in each quadrant.

I'm sure many of you have heard of the 80/20 rule (aka the Pareto Principle) but I think it's worth reviewing.

The 80/20 rule means that 80% of the result comes from 20% of the input.

The rule was developed by an Italian industrialist and economist named Vilfredo Pareto. He was a pretty smart guy and in the late 1800s observed that the majority of the wealth in Italy was owned by a minority of the people. Once he'd recognized this, he started to observe other phenomena and realized that the rule held true across a number of different cases.

And, it's still a good rule of thumb today. Microsoft has reported that they've eliminated 80% of errors and crashes by fixing the top 20% of reported bugs.

So, what does this mean to you?

Well, in most cases the majority of your revenue comes from a few customers. A lot of us spend a significant amount of time on the wrong activities and/or the wrong clients. By figuring out which 20% of your customers deliver 80% of your revenue, you can save a lot of time and effort by focusing on those customers.

Finding your Top 20

To identify your top 20% of customers who generate the most revenue, make a list of all of them and the total amount of sales you've received from each over the past year. You can use the Top Customer Identification sheet to track them (see template below). The sheet will also calculate the proportion of your company's total sales delivered by each customer.

Once you've entered all of your customers, sort the sheet in descending order by the % of Total Sales column. This will put the customers who deliver the greatest amount of revenue at the top of the list.

Finally, add the percentages together from top to bottom until you reach 80% - these are your Top 20.

By focusing on those customers, you will get the biggest return on your effort.

One thing to note: It's not always an 80/20 split. It could be that 10% of your clients deliver 95% of your business. The split is not the important part. The important part is that a small portion of your customers deliver the great majority of your income and you need to know who they are.

Top Customer Identification.xls

Growing a business takes focus, hard work and lots of staying power. The to-do list grows every day. But have you ever stopped to think about how all those things get done and if there is a better way to do them so you can handle more business?

No matter how small, each of the tasks that you and your staff work on has a process associated with it. The process is made up of all of the various steps that are needed to complete the task including who does what, when, and how the steps get done.

All too often, many of these processes go undocumented. Worse still, there is only one person on the whole team that knows how to do that job. Since the day-to-day work is getting done, business owners don't often see the benefit in taking the time to document how it gets done. It may just seem like a waste of time.

The opposite is actually true. Taking the time to document your business' work processes is a sound investment that will pay you back many times over.

Here are some of the ways it will help your business:

Protect your business from unforeseen events. If one of your employees is the only person who knows how to use a piece of equipment and that person suddenly wins the lotto, you will be faced with a big gap in your business. Documenting your processes ensures that others can help get the work done when the unexpected happens.

Create consistency in your offering. By standardizing and documenting the way tasks are completed, you end up with consistent results that customers can rely on. Each time an employee answers the phone, completes an order, or delivers a product the customer receives the same service and gains confidence in your company.

Create the foundation needed for expansion. As you start to grow, you will need to hire new staff to cover the extra work. Documented processes help in training new employees on the right way to get things done. Getting them on track means they can start taking some of the work off of your plate so you can concentrate on growing the business.

Find better ways to get the things done. Documenting processes is the first step in understanding how tasks can be made easier. Once processes are documented, you can start assessing how work is being done and looking for ways to save time and money. Improving the processes then comes naturally.

Start documenting how your business gets things done - you'll reap the rewards in no time.

Who doesn't? Well, there is a straightforward, easy way to find more time. You just need to measure how long it takes to get things done. I'm not talking about walking around with a stop-watch around your wrist. It's actually a lot easier than that.

You can save time on virtually any activity your business performs by setting up a quick system to understand how long it takes to complete and then cutting out the clutter.

Here's what you need to do:

1. Decide which activity you want to improve.

2. Use a Time Tracker to figure out how much time you or your team spend completing that activity. Print and attach the Time Tracker (see template below) to a clipboard and tell your team that you are going to track how long it takes to get things done. Remind them that it's not a race and cutting corners defeats the purpose.

3. As your team works through the activity, the Time Tracker moves along with the tasks. The time it takes to finish each task is recorded as the clipboard moves from person to person until the activity is done.

4. Track your activity for at least 2 weeks. That way you should have enough information to get a true view of what is happening regardless of illness, vacation, etc...After the two weeks, create an average of the time spent on each task (column G for each row) and then sort them from the longest to the slowest.

5. The tasks that take the longest are the ones that will make the biggest impact and should be tackled first. Anything you can do to improve that time will cut back on the total time it takes to complete the activity.

A little investment in the short-term will save you a lot of time down the road. Let me know what you choose to do with you extra time.

Here's the Time Tracker: Time Tracker.pdf

If you are only tracking your own time, check out the iGoogle Activity Tracker Plus

Thanks for visiting my blog and, Welcome. I've started the blog to help get the word out about how easy it is to make small improvements in the way we work that lead to big pay-offs. For some of you the reward is more money and higher profits and for others it means being able to spend more time with your family or doing more of the fun things you love.

Regardless of your motivation, my intent it to help you do your job better. By better, I mean more easily and more efficiently, with less stress and less rework. To that end, my entries will focus on ways to help you save time, rethink how you get your work done, and inspire you to make changes that will give you some of your time and energy back.

This post will probably be a little short given that it's my first one. However, I'm sure I'll get better at it over time. By the way, that's the very first tip. If you do something on a regular basis and pay attention, you will get better. The more aware you are of how you get a task done, the easier and more efficient you can make it. Pay attention, create a template when you can, and reduce the amount of time and effort it takes to do anything you do on a regular basis. After a few more posts, I'll share my blog posting 'system' with you.

Here's to the journey....