How Much Did Your Customers Lose Today?

Editor’s Note: Gene Marks is a small business management columnist, author, and speaker who also owns and operates The Marks Group PC, a highly successful 10-person firm that provides technology and consulting services to small and medium sized businesses.  The Marks Group PC, launched in 2004, has grown to help more than 500 companies and more than 2,000 individuals throughout the country. Gene writes weekly online columns for The New York Times and Forbes, as well as monthly and bi-weekly columns for Bloomberg Business Week and American City Business Journals. Intuit has, on several occasions, contracted Gene to provide marketing-related services. Here, Gene offers advice to bankers on how to find ways to strengthen their relationships with their small business customers.

 

How Much Did Your Customers Lose Today?

Psst! Want to help your customers make an extra $5,000 – $10,000 next year?

It’s easy. It’s common sense. So naturally I rarely see business owners doing this. But if your customers are in the service, manufacturing or distribution business they could be letting some significant dollars slip away.

Here’s what you can tell them to do:

  • Take out their payroll register from last year (and try not to let them get to upset when they’re reminded how much they’re overpaying some people).  Add up all the hours spent last year by production and service employees.
  • Next, take out last year’s tax returns (and also try not to let them get too upset over how they’re overpaying) and add up all the overhead expenses incurred last year, like utilities, maintenance, office expenses, etc.
  • Now, have them divide the overhead expenses by hours to come up with an overhead rate per hour.

Finally: tell your customer to create a little spreadsheet. Have an admin person in their office find out the materials cost used and the time spent for each job that shipped the day before. This is not a tough assignment as long as the admin person knows how to use a phone. Have that person enter this information plus the selling price and shipping cost on a pre-designed spreadsheet that includes the overhead rate per hour. Let the spreadsheet calculate profit.

Tell your customer to get a copy of that spreadsheet every single day! Every….single….day! And start getting surprised.

Some jobs (or products, or classes, or services, or projects) that they thought were making money didn’t make as much. Other jobs may have been more profitable than they estimated. And many probably came in line with what they expected.

Now your customer can make some adjustments. Yell at some people. Stamp their feet. Throw something at a wall. Go back to their customers and re-quote future orders. Find new customers who would take more profitable jobs.

It’s not perfect. The numbers probably aren’t exact.  But it’s going to be pretty close. And it’s also not a six figure job costing system that some consultants would recommend.

Your customers may find themselves getting reacquainted with their production people and their customers. They may be relieved to get rid of those customers that they always suspected were unprofitable. You may find themselves taking advantage of some vendors that for years were taking advantage of them.

How did I come up with a $5,000-$10,000 savings? I figure if a company bills out half a million or a million a year, and they increase their job profits by just 1%…well there’s your answer.

By Gene Marks

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