Tracking Your Clients in a Service Business

In addition to having a strong tracking system for the work that comes in and goes out, it's important to track statistics on your clients, such as the number of clients, the frequency of their visits, the average billing per client, and the quality of the clients. Tracking this information will help you to grow your business profitably and to serve as an "early warning system" if you're headed for the rocks.

Tracking the Number of Clients

Regardless of the bookkeeping system you use, it should be a fairly simple task to find the number of clients you have at any given time. Most computerized bookkeeping systems have a report function that you can use to print off a list of individual customers.

As you are in business longer, your customer list will grow. Ultimately, however, you will want to serve the fewest clients the most services for a truly profitable business. It takes time and resources to properly get to know and be able to service a customer, therefore, for example, doing $100,000 worth of work for 25 clients is preferable to doing $100,000 for 200 clients.

Frequency of Visits

Now that you know how many clients you have, you need to find out how often they come to see you. If you have a computerized bookkeeping system, such as QuickBooks or MYOB, this information is easily obtainable. From the Reports menu, find a report that details billings by customer.

What we want to do with this report is to count how many invoices you have issued. Another way of getting at this information is to subtract the invoice number on your first invoice in the 12-month period from the invoice number on the last invoice in the 12-month period. For example, if your first invoice number in the year is 953 and the last one is 1712, you have issued 759 invoices for the year. In other words, your clients have transacted with your 759 times. This second method will only work if you have issued sequential invoice numbers throughout the period and have not voided or deleted any invoices (in which case you would subtract the number of voided or deleted invoices from your total). Once you know how many invoices you have issued in the past 12 months, simply divide that number by your client count. Following the above example, if you have 547 customers and 759 invoices, then your clients come to see you on average 1.4 times per year.

Average Billing Per Client

Now that you know how many clients you have and how often they come to see you, you need to find out what they're spending. This is a fairly easy process for most bookkeeping practices. Review your revenues for the past 12 months. Are there any billings in there that are unusual and might spike the results? For example, did you have a single customer come in with 3 years worth of bookkeeping for you to help her catch up on? If this is not likely to repeat, then remove it from your calculations, otherwise the averages will be unnaturally high. This process is called normalizing the revenues, or making them normal.

Once you have what you think is a good approximation of your current revenues, divide the revenue by your customer count. For example, if you have 650 customers and your revenues last year were $127,500, then your average revenue per customer is--

$127,500/650 = $196.15 annual revenue per customer

One more calculation needs to be added, however to get to the revenue per transaction as opposed to the revenue per customer. You now divide your revenue per customer by the average number of times your customers come to see you. Following the above example, if your customers come to see you an average of 3.2 times per year, your average transaction is:

$196.15/3.2 = $61.30 per transaction

Therefore, in this example, you have 650 customers who come to see you an average of 3.2 times per year and they spend an average of $61.30 every time they come to see you.

Getting a handle on your transactions with your clients will help you understand the inner workings of your business and help you to grow it profitably in the future.