[IMGCAP(1)]We’ve all heard the rule: 80 percent of your revenue comes from 20 percent of your clients. But how often do you really look at how your revenue breaks down, where it comes from, and how profitable your business is in each area?
Segment your business
Most firms have all the information they need to analyze their revenue and it resides in their general ledger and/or time and billing system. While most systems aren’t naturally built for this type of analysis, most software systems have an export function that will allow you to export the data you will need. Data we recommend exporting includes:
• Client name and number
• Revenue (billed-excluding write downs)
• Segment (industry/service)
• Service codes from your time and billing system
Additional categories can be exported depending on the depth of analysis you want to conduct. For example, you may have general categories for a segment, like healthcare, but if you want to determine how many physicians are clients, you will likely need an SIC number or business code from their tax return.
Put your data to work for you
Once you have your data organized, it’s time to put it to work for you. Three areas firms will want to look at include: revenue by partner, revenue by segment and services by segment. These three views will give you a very thorough overview of what segments are generating your revenue and through which services.
The first time a firm completes this exercise, it’s eye-opening. This exercise is something that should be completed annually by firms and if possible, kept updated on a regular basis throughout the year. Doing so will help you identify:
1. Lower-profit segments through deeper analysis into the segments.
2. Data to show experience and dedication to your firm’s key segment areas.
3. Services being performed and gaps in services by segment.
4. New or emerging segments for your firm.
5. Success with your growth year over year
Understanding where your business comes from can help you be more strategic, become more profitable, and ultimately win you more business.
Sarah Johnson is the chief growth strategist with Inovautus Consulting, a firm that works with CPA, Law and professional service firms to help them grow more effectively, and author of Practical Ideas for Growth, a blog dedicated to growing professional firms. Her counsel and strategies have helped move firms to the next level in their marketing and sales efforts. Connect with Sarah at 773-634-9902, firstname.lastname@example.org, or www.linkedin.com/in/sjjohnson.