Service Businesses: Calculating Your ‘Opportunity Number’

Service Businesses: Calculating Your ‘Opportunity Number’

We market ourselves and cultivate relationships.  We try to tune into the needs of the potential prospects we run into and carefully craft our conversations.  When our phone rings, we feel the excitement of the possibility of a fresh, new client.  You may want to convert every one of them to a sale, but the problem is, if you do, you may just go bankrupt. Let me explain.

Each of us has 24 hours in one day.  Most of us have annual revenue goals. Many of us have appropriately broken this down to monthly, weekly, daily, or even hourly revenue goals. Hopefully you know what yours are. (If not, you should!)  And, if you don’t pull in that level of revenue for, say, the week or month, then you’ve missed your plan.

Now, suppose you want to generate $1 million in sales for the year. On average, you need to pull in $20,000 a week. That’s $4,000 a day.  What if four out of five people who contacted you about your services were ready to pay you $200 for a one-off job? You might spend an hour speaking with them and 10 minutes on their contract, with your team spending an hour on legal and accounting compliance. You or your team perform the work; then the client has another hour of questions. You just lost $1,000 on a $200 job.  …You’re moving in the opposite direction of your daily revenue goal.  It’s just better not to take it.

Instead, how about if you spent those couple of hours on a $50,000 proposal? Even if it takes you 10 times as much time to finally close the deal, it’s time well spent. Spending $5,000 to win a $50,000 deal make much more sense.  The problem is we tend not to look at unbillable time that way. We usually just chalk it up to overhead.

Here are some steps to think about when you are bringing in new clients and going after new business:

1. Know exactly how much it costs to bring on a new client. You might still take an unprofitable engagement assuming the value/profitability of that client increases each year you serve them. But don’t take on a client who argues with you on fees, wants to change your contract or is far below a good project size for you.

2. Spend your time wisely. Stop doing things for free for people who have not helped you financially in some way over the years. Stop writing off your time. Stop answering client emails for free. Stop spending hours doing something for free unless it will lead to an excellent relationship or good revenue down the road for you.

3. Compute your Opportunity Number. That’s the number by which you will suffer too much loss if you take on that client. It might be $20, $2,000, $20,000 or $2 million. For example, your number might be $5,000. Any project below a revenue of $5,000 is not worth your time. Any opportunity at $5,000 or above, you should actively pursue.

4. Post that number on a sticky note, put it on your vision board, or perhaps make it a part of your computer’s password so you touch upon it every day. Every decision you make should factor in your Opportunity Number. The way you spend your time on an hourly basis should factor in your Opportunity Number.

5. Set up a filter in your marketing funnel to direct clients below your Opportunity Number to low-end products, group programs or low-end services. Do not let them gobble up your owner’s time or your overhead. It sounds mean, but if you do, you won’t make your numbers, or you will have to work long hours to do so.

6. Look at your to-do list considering your Opportunity Number. You may have a lot to cross off, and a few new tasks and prospects to add.

To get the quantum leap, work your top opportunities. Check out who lands on your doorstep but make more time to go after who you want.

Now go determine and start managing your Opportunity Number for a more profitable business.


TITAN Business Development Group

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