A Fine Line Between Bad Business and Good Business

Scales and Business

Introduction

The all too common mistake made by countless businesses is that they often fall into the ill-fated trap of trading for trading’s sake. Very little consideration is given towards margin contribution or whether the client even complements the business. Instead the logic applied is often one of “negating overheads” or “keeping the wolves from the door”.

Whist margin contribution should always be the primary decision point there are a number of secondary pointers that should also form part of the decision making process of both attraction and retention. These factors do carry a degree of value to any business type and are commonly known as “weighting factors”. My top ten factors are shown below:

  1. Loss Leader
    A common analogy used with high street retailers and can also be adapted by any business type. For example a logistics company may wish to attract a client from a certain sector i.e. Fashion or may want to trial a new piece of software. In doing so they would need at least one proven case study to act in the form of a “guinea pig”. This will allow for “live” testing and help to build a proven track record that in turn will assist in the attraction of further desirable business.
  2. Untapped Potential
    All too often service providers do not conduct sufficient research or fully understand their clients business. As a result there is very little adjacent selling and the opportunity to provide extended services goes amiss. If an initial sales enquiry is on the small side then dig deeper and you may just find that all is not what it initially seems.
  3. Great PR
    Opting to trade with a high profile client irrespective of margin contribution can be a good thing. Compelling PR can be hard to come by at the best of times hence when a high profile name does present itself, grab it with both hands and milk it for what it’s worth.
  4. Referral Value
    Whether it be a powerful testimonial or an introduction to other prospects, referrals by existing clients can prove invaluable and is a low cost route to attracting new business. Conversion rates are also higher as referrals instil confidence with the curious party.
  5. Loyalty
    Providing that loyalty to a client doesn`t translate to blind stupidity then recognising a long standing relationship is important and re-enforces an important value that should run throughout a business. As a business grows the size of client attracted grows by default and it is important that those much smaller long standing clients are given due consideration and are not in the crowd.
  6. Seasonality
    For any business that experience seasonal peaks then a client that helps to offset those peaks could well be welcome news. Every business craves a much flatter all year round profile and if you can find a balance between clients that peak in summer and clients that peak in winter then efficiency and utilisation levels are likely to be the winner, all of which positively impact the bottom line.
  7. New Territory
    If you have one eye on gaining market share or launching a new service then you will need certain types of clients to help you on your way regardless of their contribution levels from the off. These clients will help you to fine tune your offering and your future price point. New territory can also help to improve conversion rates due to a wider offering and broader appeal.
  8. Commercial Risk
    If a client has a good payment history then they represent very little financial risk. On other hand, terminating clients can also have a negative effect to reputation. Each case should be treated on merit and given careful consideration.
  9. Expansion
    If you`re business is expanding then you may need to hold onto the low performing clients as they will help to negate an increase in overheads in the short term period of adjustment when any form of revenue contribution is welcome.
  10. Low maintenance
    If a client consumes very little time or space but makes some positive contribution to the bottom lime then this should be seen more so as a virtual retainer and not as a blot on the landscape.
    This only really becomes problematic when a client falls into the unwanted classification of low value / high maintenance.

Summary

As the old saying goes: “if something doesn`t add value – don`t do it”
The word “Value” in business is often referred to as a contribution to the bottom line and as the above article shows Value can be achieved in many different ways.
The top 10 weighting factors are relevant to most business types but as they are largely subjective they are secondary considerations that help form part of the decision making process. The primary consideration must always be direct bottom line contribution by client. If you don`t know or don`t track this output then you`re business relies far too much on good fortune which is unlikely to run forever.

Author: Ian Walker – Managing Director 3P Logistics Limited
Published: 14/01/2016
Visit us: www.3p-logistics.co.uk
Email Us: enquiries@3p-logistics.co.uk
Call Us: 01942 720077

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