Making Higher Profits On Fewer Clients...

CLIENT: A payroll outsourcing company.
 
 PROBLEM:
 
Marketing and sales success created a problem for the client. After repositioning payroll outsourcing and raising the client’s profile among HR managers and CFOs, growth was producing too many small, unprofitable clients that offered limited growth opportunities. Yet many of these newer clients were consuming a disproportionate amount of time to service.
 
OPPORTUNITY:
 
Assess the client list to determine which were profitable to the company by reviewing the profit and growth potential of current and prospective clients.
 
DELIVERABLES:

A template was created to measure potential growth and profitability of clients and prospects on a dynamic, on-going basis. Four tiers were created, ranging from “Most Valuable” to “No Growth Potential” client based on the company’s profitability goals. Prospects were tested against the template and some rejected.

The tiering used a strict formula to determine which “high growth value” customers to focus on during the coming year. The criteria was not based solely on billings but included factors such as how fast invoices were paid, whether or not the company was expanding, the competitive position it held in its own market, and similar measurements. Existing clients were measured annually against the template’s criteria.

OUTCOME:
 
By the end of the first year, revenues declined 11% but profitability increased 13% because management focused its time more intently on growing the right clients.

The assessment found that clients offering the least growth potential were taking the greatest amount of staff and management time, detracting them from working with clients offering significantly higher potential.

As a result, clients in the lowest, “No Growth Potential,” tier were “fired” by raising their monthly processing fees to discourage them from remaining with the company. Time was freed for management to focus heavily on “High Growth Potential” clients in an effort to move them into the “Most Valuable” tier. Clients in the third tier were analyzed to find ways to make them more profitable.