Vendor and provider management are essential to maintaining profitability.
However, when revenue comes from multiple sources, is tracked in different systems, and those systems don’t integrate, money pours through the cracks.
That’s what happened with this service-based business.
Here’s how we flipped profitability by optimizing vendor and revenue management.
Problem #1: Lack of Funds to Improve and Various Revenue Sources with Spotty Reporting
Solution #1: Provider Coordination
The client base was growing but the business lacked the funds to make operations, client experience, and staff improvements. And we confirmed that compensation and costs were reasonable and not the cause of the lack of funds.
We convinced the various providers to work together to match revenue to clients and combine the findings into a master document. We did so by sharing that clarity of profitability would produce a faster growing business, thus generating more revenue for their own companies.
Upon coordination and compilation of revenue per client, we calculated average revenue per client and compared it to an estimated cost of servicing a client. This calculation revealed a lack of profitability among 75% of the client base.
This data, along with past P&Ls, confirmed that the past 10 years lacked profitability. Plus, it also confirmed that the multiple, diverse revenue sources and lack of reporting systems were unsustainable, making it impossible to understand the business revenue patterns and flow. We used this information to prompt productive conversations about systems, decreasing revenue sources, and finding methods to reduce client services to get back on track toward profitability.
Problem #2: Unclear Which Clients Were Unprofitable and No Longer a Fit
Solution #2: Clarifying Client Service and Removing Emotions from Decisions
When you choose to optimize your business to achieve long-term health, you can offboard your not-fit clients without guilt or regret. And knowing what needs to be done is easier when emotion is removed. We did this by documenting facts into a chart.
Next, we segmented the client base into revenue ranges. Then, we documented proactive and reactive services per each revenue segment. Next, we shed unnecessary services. Finally, we started the tough discussion about unprofitable clients and how the servicing of them lowered capacity to service profitable clients. Separating emotion from truths empowered and energized the team to provide quality service to the profitable clients and seek solutions to lower service and off-board core customer base. This allowed the business to retain $100,000, instead of hiring additional staff. This revelation enhanced the client experience, which increased referrals of ideal clients, and strengthened the brand and reputation.
Problem #3: How to Stop Wavering from New Servicing Standards
Solution #3: Process Documentation and Soft Accountability
With the segments and services documented and client offboarding begun, the team had the energy to continue improving. We co-documented servicing processes into the CRM and uncovered more time-saving procedures. And by co-documenting, the team learned their roles and expectations. As a result, there were no objections when the processes were activated and progress was reviewed in staff meetings.
Achieving Profitability for the First Time in 10 Years
For the first time in the 10 years since opening their doors, this business achieved profitability by making simple moves in provider management, reporting, client segmentation, and process documentation. Within one year, the business was transformed and began to retain funds earnings and invest in their people and operations.
Will You Be Next?
At My Virtual COO, we help service-based business owners optimize talent and systems to boost business success by working the most important parts of the business, including:
- Growth, Profitability, and Impact Projections
- Organizational Design
- Lean® Process Design
- Client Experience Documentation
- Productive Collaboration and Change Acceleration
- C-Suite Training
