A busy year, and a feeling about some customers
Every contractor has a feeling about certain customers. The big arable farm gives you a lot of work, but at keen rates, and you are there so often it must pay. The small livestock farm up the valley pays well per hour, but it is a long drive for a short job, and his gateways are narrow. The horse livery pays full rates for baling and wrapping but takes months to pay. The old customer on held rates is a friend.
At the end of the year, the accounts show the whole business. Turnover is up, costs are up, and profit is about the same as last year. Which customers drove that, and which dragged on it, the accounts cannot tell you.
Why profit per customer is hidden
Income is recorded per customer in your invoices. Costs are recorded per business, per machine or not at all.
- Operator hours, fuel and machine time are not recorded per customer.
- Road time to each customer is not measured.
- Consumables used on each customer's job are estimated, if recorded.
- Discounts and held rates are not visible next to the costs they have to cover.
- Slow payment has a cost, in borrowing or delayed spending, that is never counted.
The customers who look best on the invoice list are not always the best customers. A large customer on a keen rate with a lot of road time and slow payment can bring in more turnover and less margin than a small one close to the yard who pays on the day. Neither is right or wrong to keep. The point is seeing the difference.
Putting all of that together per customer is too much to do by hand, so it is not done, and decisions rest on feeling.
What not knowing costs
Keeping unprofitable work at the expense of better work is the main cost. In peak season, time spent on a job that barely covers its costs is time not spent on a customer who pays better. Rates for some customers fall further behind costs each year without anyone noticing.
It also makes conversations harder. Asking a long-standing customer for a rate rise, or asking a slow payer to pay on time, is easier with figures than with a feeling. What rates to set and which customers to keep are your decisions, with your accountant's advice where needed, but the figures make them better decisions.
Margin by customer, from records you are already keeping
What we build is a customer margin view that brings together records from the rest of your system.
- Income per customer comes from invoices, including recharges for materials and consumables.
- Operator hours per customer come from the time record, costed at a rate you set for each operator or grade.
- Machine costs per customer come from machine hours on their jobs, at your cost per machine hour where you have it.
- Fuel per customer comes from fuel per job, and road time per customer from the road time record.
- Consumables per customer come from usage on their jobs, at what you paid.
- Payment timing per customer comes from your accounts, shown as average days to pay, with an optional cost of carrying the debt at a rate you choose.
| Per customer | Source |
|---|---|
| Income | Invoices |
| Operator cost | Time record and your rates |
| Machine cost | Machine hours and cost per hour |
| Fuel and road time | Fuel and road records |
| Consumables | Usage on jobs |
| Payment timing | Accounts, average days to pay |
Where a cost is estimated, for example machine cost before you have a full year's figures, it is marked so you know how firm the result is. Nothing is presented as more precise than it is.
The winter review, with figures
In winter, you sit down with the customer view. The big arable farm has a thin margin on drilling because of the keen rate, but a good one on combining, and pays promptly. The small valley farm's margin disappears once road time is counted. The livery is profitable per job but takes a long time to pay. You decide to add a road charge for small jobs over a distance, talk to the livery about direct debit, and keep the friend on held rates, knowing now what that costs.
The decisions are the same kind you always made. This time, they are made with the figures in front of you.
Do you know which customers make you money?
- You have a feeling about which customers are profitable but no figures.
- Road time, fuel and machine costs are not tracked per customer.
- Some customers' rates have not been reviewed for years.
- Slow payers are treated the same as prompt ones.
- Profit is flat even though you are busier.