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By Holly A. Magister, CPA, CFP®

When we looked closely at your company’s gross revenues in our Money on The Table post, Pareto’s Principle (80/20 Rule) Applied to Women in Business, a few weeks ago, it became clear that sales made to all   customers/clients fall into either the 80% or 20% category (below or above the Pareto’s Principle line).  Specifically, those customers/clients who appear above the line   usually   number about 20% of your total, yet they produce 80% of your business’s profit. 

This reality can be quite scary, especially   when you consider the flip side of Pareto’s Principle.

Think about it for a minute. It’s very likely that the majority of your activities, and consequently your company’s resources, are dedicated to producing a product or service for that part of your customer base that offers little or no profit (the bottom 80% of customers that produce only 20% of your profit).  To more fully understand this, it is good to look at the average gross revenue for each of your customers/clients on a yearly basis.

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By Holly A. Magister, CPA, CFP®

When applied in a business situation, Pareto’s Principle likely will reveal to the woman entrepreneur that her business is serving (at least) two very different sets of customers/clients. And in trying to do so, she and her staff will suffer anxiety, frustration, and the loss of company profit.

So what is the Woman Entrepreneur to do?

First, I have found that most business women are empowered by knowing exactly how their business’s two sets of customers/clients impact their Profit and Loss Statement.

So let’s start with the basics! Over the next four Money on the Table posts, you will need your calculator. Please don’t panic—none of you will have to take a test or need to call your Accountant. We are going to break down facts and figures in very simple terms found in your existing Profit and Loss Statement and Customer Sales records to shine the light on where you are making and where you are losing money. Ultimately, we don’t want you to leave Money on the Table.

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By Holly A. Magister, CPA, CFP®

The best solution to a problem lies in uncovering what the root cause of the problem really is.  So often, this is the case when a woman entrepreneur is struggling with profitability in her business. 

Over the past few Money on the Table Tuesday posts, we have discussed the concepts of how a minimum order policy and Pareto’s Principle applied to the customer/client base can be very powerful to help a woman improve the value of her business.

How is This Done?

By understanding clearly which customers/clients offer you the greatest profit, you automatically focus a bright light on the remaining customers/clients who do not.  Those are the ones that actually cost you more than what they offer you in doing business with them.  This is the worst form of Leaving Money on the Table and it is very important that you do what is necessary to remedy the situation.

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