Profitability of Commercial vs. Residential Customers
One landscape industry client I worked with was suffering from sub-optimal profitability.
While digging around his information, I realized that well over 80% of his business was coming from fewer than 20% of his customers. He was servicing a mix of residential and commercial, and he clearly wanted to only be doing commercial work. He said, “I just can’t get rid of the residential because it’s very profitable.”
So we looked at the profitability of the residential customers. We found out that residential was very profitable if you only looked at just Gross Margin.
When you considered travel time and other indirect costs, particularly admin costs – servicing all those residential customers, invoicing, collecting, taking phone calls, etc. – we quickly figured out that they would be much better off if they no longer served residential customers. They didn’t want that to be a long-term strategy in their business.
I recommended for them to package those customers together and go to another landscaper that was doing residential business in their community who wasn’t too formidable of a competitor for them. They sold that book of business to their competitors, and they got a little bit of cash from doing it.
They got a much more focused business with fewer headaches, and it was easier to manage. Plus, it was a great win for the buyers, because they got more of the business they were looking for and my client grew some relationships.