The 89% Revenue Revelation
Strategics carried out a careful investigation, sorting each company’s clients into four sections based on revenue. They ranked clients from the highest revenue generators to the lowest. The result was astonishing. The top quarter of clients generated a staggering 89% of the total revenue. Yes, you heard it right—89% of the income came from just the top 25% of clients. Only 11% of the revenue had to be divided across the remaining 75% of clients. It’s a shocking realization that underscores the critical importance of understanding your client base deeply.
Balancing Act: Effort vs. Revenue
Now, here’s where it gets even more eye-opening. The study found that each group of clients, irrespective of their revenue contribution, required nearly the same amount of effort, cost, and time to serve. In other words, serving a high-revenue client demanded just as much effort as a low-revenue one. This should make you pause and think about your own client base. Are you putting in too much effort for clients who contribute little to your bottom line?
The Profit Paradox: A Closer Look
The most striking revelation lies in the realm of profit analysis. While the top quarter of clients generated 89% of the revenue, they also accounted for a whopping 150% of the company’s profit. This might sound paradoxical at first, but it highlights a fundamental principle—revenue and profit are not the same thing. The remaining 75% of the client base, grouped into the two middle quarters, essentially broke even. Their cost of service equaled what they contributed, leaving no profit. However, the real shocker was the bottom quarter of clients, which contributed only 1% of the total revenue but resulted in a profit loss of 50%. Yes, you read that correctly—serving this segment of clients was a financial burden.
Learning from the Experts: Strategic’s Precision
The company behind this revolutionary study, Strategics, has decades of experience and a staff of experts, including profit analysts. Their precision and methodology are second-to-none. So, before dismissing these findings as irrelevant to your industry or business, consider the credibility and depth of research that went into this analysis.
Applying the Insights at Matterhorn
At Matterhorn Business Development, we’ve taken these insights to heart, and we’re applying them to help our clients thrive. Instead of solely focusing on acquiring more clients, we now start by evaluating our clients’ top revenue generators. We delve into understanding what makes these clients loyal and valuable. We initiate surveys and conversations to discover what they love about our services and how we can serve them better. After all, most of our revenue comes from this 25% of clients.
The Fear of Letting Go: Streamlining Your Portfolio
It can be daunting to consider losing clients, customers, or even products from your portfolio. However, as Marcus Lemonis, the host of “The Profit,” often demonstrates, sometimes it’s a necessary step towards profitability. Take, for example, a company with 99 flavors of ice cream, but only 15 of them contribute to 90% of their revenue. Keeping the remaining 84 flavors not only ties up resources but also eats into your profit margins.
Lean and Mean for Maximum Profitability
The main lesson to be learned from all of this is that it is time to cut the fat and concentrate on what matters most. Concentrate on your target market—the customers who love your brand, have the financial means to support you, and appreciate your offerings. By focusing on this segment, you’ll be able to drive profitability and, in turn, have more resources to invest in growth and expansion.
Embracing the Profit First Mindset
In conclusion, we are all about Profit First here at Matterhorn Business Development. Our mission is to empower you to expand your business, become more profitable, and ultimately enjoy a greater quality of life with more time, freedom, and fun. To start embracing the Profit First mindset, I encourage you to perform a similar analysis for your business. Create a spreadsheet, list out all your clients and products, and sort them based on revenue. Then, dive into a profit analysis calculation. While there are no absolutes in business, I’m confident that you’ll find patterns similar to what we’ve discussed here. And don’t be afraid to consider letting go of clients and products that are draining your profit margins.
In today’s competitive business landscape, it’s crucial to work smarter, not harder. By focusing on the clients who bring in the most revenue and profit, you’ll position your business for sustainable growth and long-term success. Remember, it’s all about Profit First.
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About Greg Winteregg
Greg founded Matterhorn Business Development to assist small business owners in growing their businesses and increasing profitability at the same time.
He was an internationally recognized lecturer, sales trainer, and management consultant who spent close to 30 years working with professionals and small business owners across the US and Canada.
In 2019, he authored his book “Fun at Work.”