The Sales and Marketing Professionals
Strategic Focus Means Increased Profits
Two years ago, a large mid-western environmental services firm took a bottoms-up approach to planning. They felt they were spread too thin by trying to serve too broad a base of clients with too broad a range of services. In effect, trying to be all things to all people.
They felt they could improve their results by concentrating on their core services-services that they could provide better than anyone else. They also recognized that client satisfaction was a key differentiator requiring greater service and attention to to key clients. They traditionally enjoyed an 85% level of repeat business, however their hit rate on new projects was only in the high teens. The marketing focus was on responding to RFPs and and not focusing on key clients and market segments.
At the same time, they were experiencing visible client defections in some offices. To better understand the problem, they analyzed seven core areas and decided that there were some services they could simply not provide. Their 650 clients were segmented into markets. Recognizing that each market was driven differently, they matched their company’s strengths to the opportunity factors they saw in each market. With their client base grouped into individual market segments, they looked at all 650 clients and market segment individually on the basis of:
1. Revenues generates
2. Gross profit after direct expenses, before SGA expenses.
3. Receivables history, days receivables outstanding, etc.
From this analysis, they learned that 46% (300) of their clients, represented less than 10% of their overall revenues. These clients generally had the lowest project gross margins and the poorest payment records. They were also the most likely to have project cost overruns resulting in write-offs that never show up on a receivables report.
This analysis took a lot of hand holding with operations people who were closely tied to many of those smaller and less profitable clients. However, during the process, they came to understand how long-term growth and earnings prospects for the company would be hurt significantly if they didn’t pay more attention to the large clients. Service to the larger, more profitable clients suffered because of the disproportionate amount of attention required to service the smaller, less profitable clients.
Based on the outcome of this analysis, the company made a conscious decision to reduce the number of clients they would pursue from their existing base of 650 down to 300.
This didn’t mean that they called these 350 clients and told them they didn’t want to do business with them any more. It simply means that they now focus their marketing time and other efforts on the top 300 clients exclusively where the prospects for larger, more profitable opportunities exist.
RESULTS:
1. A continued high level of repeat business (85%), but now with more profitable clients.
2. An increase in bookings of 40% in 2006 versus 2005. On a twelve month moving average, booking levels are almost 60% ahead of the previous twelve month period.
3. A substantial improvement in pre-tax earnings-200% on an increase of 80% in revenues. Cash flow is now approaching 8% of revenues.
4. An improvement in project win rates of over 250%
The company now has 9 offices and 600 employees down from their peak of 750 when they made the decision to restructure their business. Even with their leaner look, they feel they are more in control of their business and better positioned to capitalize on the many opportunities in the markets for environmental services.