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Big Ticket/One-Time Quality Customers Math

Check the math: You earn seven times more profit from a Quality Customer than from a 2nd-Rate or Bad Customer.

Jim Stein
Published Date: May 19, 2023

Lots of local companies provide services that Quality Customers purchase once and then not again for a long time. In this post, I focus on these Big Ticket/One-Time companies and do the math on the difference on a per customer basis between doing business with a Quality Customer versus a Bad or 2nd-Rate Customer. The results are staggering.


Companies With Big Ticket/One-Time Customers
If you’re running a company that has Big Ticket/One-Time customers, you earn 7x more profit from a Quality Customer than from a 2nd-Rate or Bad Customer. Take a look at the Key Numbers in the Big Ticket/One-Time image. (Your numbers will vary, so download the Big Ticket/One-Time Customers Comparison Spreadsheet from the Tools section and use it to calculate the difference in customer quality for your company.)

 

Big Ticket/One-Time Quality Customers are willing to pay for quality pricing; are fairer in their job assessments, which causes less rework on your part; and refer other like-minded customers. These factors combine to create a huge per-customer financial value gap between serving Quality Customers and all others.

 

The math behind Big Ticket/One-Time businesses works in similar way. I’ll use a roofer as an example. Suppose your average invoice is $10,000 for a Quality Customer (QC) who is willing to pay for quality, but only $8,000 for a 2nd-Rate or Bad Customer (BC) because they have a smaller home and they’re a price shopper. You may have a 50% direct margin with QCs but only 40% with BCs because you’ve lowered your price to get the job. Now you have a $5,000 margin from QCs vs. only $3,200 for BCs.

 

Next, we calculate the toll that BCs put on businesses like yours. They’re not good to deal with and they’re willing to make unfair claims, so to mollify them, you end up spending more staff time with them and doing rework. So, you may have rework and extra staff costs of 1% of revenue for QCs while you’ll have 15% or more extra costs dealing with BCs. When we net out these extra costs and recalculate the direct margin on this job, QCs are giving you a $4,900 margin while BCs are only at $2,125. That’s 230% more for QCs!

 

Quality Companies like yours depend on referrals. And here’s where the multiplier effect of QCs triples your already big advantage. While BCs don’t refer, QCs average two or more referrals during the 7 to 10 years following their job. They become your Hot Center and speak well of your company to their family and friends, who tend to be Quality Customers as well.

 

Total Score
Direct margin per Quality Customer = $14,700 vs. $2,125 for 2nd-Rate/Bad Customer