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Sunday, August 10, 2008

Profits - Even in a Tough Economy

One of my favorite clients is a Veterinarian in a small Oregon town. Besides liking him as a person, I'm extremely pleased that he has not only incorporated my advice, but has profited from it as well. Both financially and in peace of mind.

The story begins when we first met through friends at a social gathering. The normal "what do you do" information was exchanged, and we quickly began discussing the tough economy and how that was slowing business at the practice. Being a sole proprietor, he was also the book keeper, payroll clerk, CEO, CMO, and night janitor. It was hard work, long hours, and being on call for midnight pet emergencies was no picnic. There was genuine concern about his ability to stay in business.

My favorite topic is strategy around targeting customers. And I believe that the customer defines the business - the concept is surprising to some clients I've worked with. So I asked "tell me about your best customer. Who do you make the most profit from? Who is most satisfied with your services?"

It didn't surprise me at all to learn that his best clients were those that view their pets as members of their family. They take proper care of their pets. They are proactive in the care of their pets. And the financial costs for this care is not as important as the fact that their pet is comfortable, healthy, and a happy part of the family. Of course there are limits to their abundance, but the opportunity to work with such clients produces profits and happiness for all involved.

As counter examples, there are no end to the number of potential clients who ask for free pet care. As if the typical care for animals that most Veterinarian's share should lead them to be willing to forego all financial concerns to help any animal that comes along. Or those people who expect normal charges for weekend service, because that is when they are available to bring their pet in.

This leads to a tremendously easy business strategy: pay lots of attention to those clients that treat their pets as members of their family. And minimize or eliminate time spent on actual or potential clients who don't. His employees all of sudden are happier. Why? When a pet owner calls to explore becoming a client, every employee can easily identify whether to pay lots of attention, or whether to not. It makes employees happy to know what to do. In this case, it also helps that they deal with a more pleasant client. This takes a lot of pressure off of the owner.

We then brainstormed how to keep existing profitable clients happy, and find new ones. He created a "pet wellness program" and was amazed at how easy it was to upsell these clients. He even gives his cell phone to these clients, telling them they are special.

I then asked "how much do you want your business to grow? How much profit, how much revenue? How many clients do you have? What are your fixed costs?" And a few other pertinent questions. The primary business goal was to achieve 7% growth in profit each year.

From this basic financial information I assembled an estimated balance sheet and income statement. I added variables to the spreadsheet so I could use the estimated incremental cost and income information to explore the performance of his business. From this simple calculation I was able to demonstrate that 2 new clients a month would easily grow profits 7%. That simple spreadsheet brought a lot of peace of mind to my friend. "Only 2 new clients a month? That's easy!"

The moral of this story is to focus on profitable customers. Train your team to identify them. Set your business goals and processes to focus on them.

Peace of mind and profit.


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