When performance slips, management’s instinct is often to push for more revenue.
More sales do not always lead to higher profitability. In many cases, chasing revenue is exactly what keeps a company stuck.We recently reviewed the trailing 12 months of sales and gross margins for a client and found something eye-opening: roughly 70 percent of their revenue was coming from customers below the company’s target gross margin. Worse, most of those customers also generated low annual volume. They were taking up time, capacity, and working capital without meaningfully contributing to profitability.
The decision was not to sell more. It was to sell smarter.
By letting go of the least profitable customers, the company reduced operational complexity and cut related operating costs. Fewer low-margin orders meant less strain on operations, fewer exceptions, and better use of internal resources. After two consecutive years of losses, the company returned to profitability. From there, management could focus on increasing revenue per client and selectively bringing on new customers that met minimum order sizes and minimum annual gross profit thresholds.
As you start the new year, take a hard look at last year’s sales using these parameters:
- Revenue per customer
- Gross margin per customer
- Cost to deliver products or services per customer
Then build a plan to address what you find and execute it with discipline.
Growth without discipline is just expensive activity.
