Profitability by type of customer
When evaluating what works well in your business and what doesn’t, one of the things I like to see is what Types of clients are the most profitable for me. If I can reduce the types of customers that are profitable, I can streamline my workflow, simplify my marketing, make myself known in those industries, and increase my bottom line.
Some companies use the classes to see the different types of customers they have. An example might be commercial versus residential or non-profit versus business. In my business, I prefer more details about my clientele (I want to know what industry they represent). Since I find many classes cumbersome to review, I use the Customer Type field in QuickBooks to describe the customer industry (QuickBooks defaults to how customers find it) and a Custom Field for Lead Source. You can assign only 1 type to the customer, but you can assign a different type if you have multiple jobs for one customer. Other examples of customer types could be the type of residence (condo, townhouse, single-family home, farm) or location (city, county, subdivision) or type of manufacturer (biotech, pesticides, sausages), type of business (agency of defense, medical center, nonprofit) or company size. Think about what helps you identify your ideal customer and what can give you ideas.
While you can get reports that show you sales by customer type, that’s not always the whole picture. You may find that in some cases where the income is high, so are the costs. Therefore, it is useful to have the ability to analyze the profitability of one type of customer. If you look at the standard profit and loss reports, you won’t see the ability to make profit and loss by customer type. However, if you go through the custom reports, you can create a report that will allow you to see the profitability of the customer type in the same format as your P&L. These are the steps:
- Click Reports> Custom Reports> Summary
- On the Display tab, select your date range and Report Basis (cash or accrual)
- In the Column section, select Customer Type from the drop-down menu
- Leave Show rows by income statement as is
- You may also want to see the row percentage; This will allow you to compare different types not only by dollar amount, but also by the percentage of your business.
If you have a lot of customer types and subtypes like I do, this report might be easier to view and examine if you export it to Excel.
This report does not show all of your business expenses, only those that are charged to a customer. But this can still be very useful, especially if you have a lot of costs associated with certain types of customers.
This report can provide interesting information about your business. After all, it is not just the total money these types of customers bring to your business, but the cost effectiveness of the different types. And that’s what it’s really about, isn’t it?