Cost the customer the way you would cost a job, with the time in it. Most owners can say what a customer pays. Very few can say what that customer costs, because nearly everything left out of the calculation is time: your people waiting to be let in, your equipment parked at their site, the phone calls chasing a disputed invoice, the extra trip because the order was wrong. None of that appears on a spreadsheet, and all of it is paid for.
The spread inside one business
When the founder of Summit priced his own routes properly for the first time, one contract at a time, the returns ranged from seventeen percent to eighty-four percent over the cost of running them. Same company, same trucks, same year. The total had looked fine for years. The spread had been invisible because nobody had costed the pieces.
Most unprofitable customers are also unproductive ones. Too far out, too fragmented, too much dead time around the work, so there is no room to place another job alongside it. That is a geometry problem wearing a pricing costume. A price increase alone fixes the profit and leaves the waste exactly where it was.
What the waiting costs, and who pays it
On the first Monday of a new contract, the founder stood at the customer’s dock waiting for his own trucks. The first thing he installed was not a financial report. It was on-time arrival and on-time departure. Arrival held his people accountable. Departure held the customer accountable, because their people had to release his truck rather than burning his money while his driver stood still. Most operators measure only their own punctuality, which makes every hour the customer costs them invisible, unbillable and absorbed into cost as a mystery.
The two acceptable outcomes
When you raise the price on a customer who costs you money, there are two acceptable outcomes. They pay it, and the customer is now profitable. Or they leave, and the waste leaves with them, freeing the time and the equipment for work that pays. Most owners refuse to let themselves want the second one. It is the one that usually fixes the business.
Try this
Pick your three biggest customers. For each, log for one month the time your people spend waiting on them, chasing them or redoing their work. Just the time. Total it, price it at what an hour costs you, and set it beside what they pay. Then decide whether it belongs in their price.
See what the leakage adds up to
The Profit and Cash model puts the yearly leak beside the cash you have trapped, and keeps the two apart, because one recurs and one is released once. Free, no sign-up.
Read the free opening of the Finances chapter →
More questions owners ask
- Why is my business profitable but I never have cash?
- What would I free up if customers paid me 30 days sooner?
- Which part of my business should I fix first?
- Why do I keep hiring for the same job?
- What should a small business measure every week?
- Is my business growing, or just getting busier?
- Why does every decision still come back to me?