Two customers can spend the same amount of money and contribute very different amounts of profit to a business.
I learned this while working as a kitchen and bath designer.
A large percentage of my business eventually came from a small group of trusted referral partners.
Those referred clients typically purchased 20% to 25% more than other customers.
But their projects also tended to include more specialty cabinetry components.
Pull-out pantry storage, Lazy-Susan cabinets, tilt-out trays, specialized drawers, and cabinets designed for built-in appliances.
These features improved the functionality of the kitchen, and many carried better margins than basic cabinetry.
The referred clients were often more comfortable making those decisions because they’d arrived with confidence in the contractor and, by extension, in me.
That made the design process more efficient.
Consider two hypothetical projects.
The first produces a $10,000 sale at a 30% gross margin.
That’s $3,000 in gross profit before selling and other operating expenses.
The second produces a $12,500 sale at a 35% gross margin.
That’s $4,375 in gross profit.
The selling price increased 25%.
But gross profit increased approximately 46%.
Now add the time required to complete each transaction.
Suppose the first project requires 15 hours of design, selling, and coordination.
The second requires 10 hours.
The first generates $200 in gross profit per project hour.
The second generates $437.50.
That’s more than twice the gross profit produced per hour of direct project work.
These are illustrative calculations, not my historical job-costing records. Actual margins and time requirements vary considerably. But the underlying differences were something I observed repeatedly.
Referred clients tended to arrive better prepared. Their projects were often more clearly defined. There was less unnecessary back-and-forth, and relatively little rework.
And when the project was completed, something else often happened.
The homeowner became another source of referrals.
A successful project strengthened my relationship with the contractor while creating a new relationship with a satisfied client.
The initial sale had produced revenue and profit.
The completed work had also created the possibility of future introductions.
That continuing value is easy to overlook when measuring a business solely by monthly sales volume.
Over time, I became less interested in how many people I could get through the door and more interested in the quality of the business coming through it.
More prospects weren’t necessarily better.
Better-qualified prospects usually were.