Jeff O’Hara, author of Have Fun, Fight Back and Keep the Party Going: Lessons from a New Orleans Entrepreneur’s Journey to the Inc. 5000 (Greenleaf, 2018), is president of PRA New Orleans, a business event management firm creating unique experiences for corporate groups. Learn more about Jeff at www.jeffreyohara.com

As a business owner, you look at many metrics specific to your business to determine if you are progressing toward financial goals. Is one of those metrics the profitability of your client base?

When we first started our corporate events business, we jumped at every new lead that came in the door, hungry for revenue and resume-building opportunities. This was great in the short term, because we didn’t have anything else competing for our time. But time is a precious resource, and one that is not renewable. As our company moved from start up mode into growth mode, our lead-chasing became a hard habit to break. After all, who wants to turn away business? And all of our clients loved us! So certainly more loving clients is a good thing, right?

More Is Not Always Better

More of the right kind of clients is a good thing. The kind of clients that drain your resources — especially your time — and don’t provide the relative amount of profitability are a hindrance on your growth. And when you are growing fast, your time and your human capital are at a premium. Continued growth will depend on how well you steward these resources of time and human capital.

A Startling Revelation

In the business events world, it is common to look at the profitability of an event by the gross margin it produces. That is, the revenue associated with the event less the costs of producing the event. A valuable metric for our business, though, and one that has made a world of difference is cost of sales on an event. My own analysis turned up some startling information: We were spending a lot of time in the sales process on clients that were not producing a ton of profit. This was preventing the sales team from prospecting better clients. So I set out to change that.

In our business, an enormous amount of labor goes into creating a sales proposal customized for each client’s specific objectives, and in many cases that cost isn’t considered when the client looks at your value proposition. They look at what we charge for full service compared to what they can piecemeal on the Internet. Certain segments of the market are high maintenance and low margin, and others understand the value that business events companies bring to the equation and understand the costs involved with that.

I made a decision to identify the market segments that understand our value and are willing to pay for it, and to focus our sales efforts there. We would not pursue any players I identified as low margin, and, if they came looking for us, we would politely decline to bid on their business. This was not always well-received. However, in my view, if I approach a provider and they tell me they don’t want or cannot take my business, they have saved us both time. I call this the “Thanks, but No Thanks” (TBNT) approach.

TBNT (Thanks, But No Thanks)

Here are just a few identifiers that would trigger a TBNT response:

Client requests proposals from too many companies. If you’re in a high-touch service business, clients who know what they are looking for will do research before sending a request for proposal (RFP), narrowing it down to two or three companies at most that are the best potential fits for them. When that list is longer than three, you know they have not done their due diligence and they may simply be looking to do just that in speaking with you. That’s not a good use of your time.

Client refuses to schedule a call to discuss the RFP. Every event is unique, and the better our business understands your goals and objectives, the better our proposal will be. If you can’t take 30 minutes to discuss it with us, you are likely just shopping price.

Client’s budget is unrealistic. This speaks for itself. We are a high-level service provider, and we will never be the low-cost provider in any bid situation. We are wasting our time with any work spent in the low end of the pool.

Client’s deadline to create a proposal is unrealistic. A quality proposal requires sufficient time for the provider. Clients who don’t understand the process or don’t respect our time may not be good partners in the short or long term.

Communicating TBNT to Your Team

While these markers are specific to my business, there are some sales universals that translate across industries. Salespeople hate saying “No” to anybody, and they naturally want to win every opportunity that comes in the door. But it is worthwhile to analyze how costs play out in the sales process and to condition your team to the concept of sometimes saying “Thanks, but No Thanks.” The fact is, every minute they spend on a low-profit group is a minute they are not spending on a high-margin group.

Ensuring your sales team is aligned with your goals may require a change in your incentive plan. In our case we added a metric to incentivize client profitability in addition to top line revenue. Voila! The team’s focus was clear so that when we had to TBNT a client, we were not derailed for long. The only thing you cannot get back once it is lost is time, so invest your time with the preciousness it deserves. Lead your team to understand this, and you will see your profitability grow.

Proof That TBNT Can Lead to Profits

In 2016, our corporate events business was named to the Inc. 5000 list of the fastest-growing, privately-held companies in the United States. Prior to this, we had received plenty of recognition within our industry. But this first-time honor from Inc. 5000 gave me an opportunity to take stock of all that had happened and all that my team had overcome. As we had learned to identify the right clients, and to manage our cash flow, we were able to recover from major hits including Hurricane Katrina and the Great Recession, and not only survive, but thrive.

Then, in 2017, we were once again named to the Inc. 5000. The notification letter indicated that fewer than one in three Inc. 5000 recipients receive the award again. It is an honor for fast growth — something that is by definition hard to maintain.

Being honored as a member of the Inc. 5000 two years in a row was, to me, more than just a recognition of successful years. It was a culmination of having overcome all of the challenges it takes to create a successful business over two decades of hard work, buoyancy in the face of some seemingly insurmountable obstacles, and a commitment to strategy that may include saying “Thanks, but No Thanks” to certain prospects.

Whether this is your rookie year or you have cultivated a long tradition in your industry, you will never go wrong by sharing your vision with your team, being savvy about the clientele you pursue, and celebrating with your team members when they produce results well beyond expectations. C&IT