| The Activity Index |
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There are two components you need to identify to construct this. a) The annual dollar value of each contract and b) Whatever information you have about how much work you have done for the customer during the last 12 months. This will vary for each business and may be factual (the number of service calls, the number of hours spent and so on) or empirical. Find a measure and don’t get too hung up on the accuracy, as the important thing is consistency and this is a start point for further research. Having developed the two components put them on an Excel spreadsheet and divide a) by b). The result is the Activity Index, and the customers with the lowest number will be your least profitable. For example, if you have three contracts, one for $10k with 10 service calls. One for $5k with 7 service calls and one for $5k with 3 service calls, the activity index will look like this: Contract 1 1,000 Contract 2 714 Contract 3 1,666 Sort the customers in ascending Activity Index order, start at the top and investigate each one in more detail. It may be that you need to raise their price. Perhaps by focusing on these customers you will unearth the underlying reasons why there is so much activity and be able to correct the situation. Don’t overlook the contracts at the other end of the scale either. While they are your most profitable they may also represent potential problems. If you are receiving money without delivering much service you may want to find a way of adding more value before they identify what you now know.
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