4 Ways to Determine if You Are Over Diversified

Todd Pugh, Owner of Todd's Enviroscapes, Louisville, OH. Photo courtesy of Lawn and Landscape Magazine

Imagine Firing 70% of your customers.

What would drive someone to fire customers?

Todd Pugh, owner of Todd’s Enviroscapes in Louisville, OH, did exactly that, which he talks about in the Lawn and Landscape March 2012 cover story “Leaner and Greener”.

Pugh decided he wanted to focus on customers that brought him $10,000 or more annually. He also wanted to grow the maintenance side of his business because it is dependable, recurring income.

In order to do this, he analyzed his current customers with three objectives in mind: profitability, routing (proximity to office), and PIB (pain in butt) factor to determine who he wanted to keep. Plus, he transitioned his ‘fired’ customers to a former employee that wanted to start his own business; so he knew they were in good hands.

The moral of the story here is that Pugh came to the realization that he was too diversified. He was pulling his resources in too many directions and not seeing a great enough return to continue down that path.

Here are Four Things you can do to determine if you are over-diversified.

Audit your invoicing- Know exactly what you have billed for. You should know how many, what size and what kind of thresholds you have if you do this. For example, you will know how many invoices under $500, $1000, $10,000 etc.
Audit your customers- Look at what each customer brings to your company each year. Evaluate the cost to provide them service, and use Pugh’s parameters (or your own) to determine if you should service someone: How far away from the office are they? How demanding are they? How do you bill them?
Audit your revenue- Determine where your revenue comes from . If you have several profit centers, you need to know which one is in first, second and third place. If you are losing money by participating in one segment of the business, you are probably too diverse and you should eliminate it.
Audit your fleet- If you have too many profit centers, you will have too much equipment. If you decide to take on a job that requires you to bush hog a field, and you have to buy a bush hog to do the work, is it worth it to take on the job?

Bottom line is, diversity in profit centers and client types isn’t always a benefit to your organization.