This is the left menu and will push out with the content.

How To Calculate "Active Clients"

(About a 3 Minute Read)

Deming - SVGThe legendary W. Edwards Deming,the man many in Japan credit for most of the Japanese post-war economic miracle of 1950 to 1960 taking Japan from the ruin of WWII to becoming the second-largest economy in the world due to his ideas and guidance.

Deming said "You can't manage what you don't measureā€. will show you that you have not been measuring sales performance effectively EVER!

The Income Formula

The Income formula is:

Income / Revenue = Active Clients * Average Sales Value * Average # of Transactions

This equation reconciles to the company's financial reporting under Income (or Sales or Turnover or whatever term the company wishes to use).

As an example limiting ourselves to one day: $1 Revenue RGB146-32-145

But the business owner knows that if: $8 Revenue corrected

Thus we can use specific tactics to improve any of the three components of income.

However, up to now, business has not had the ability to measure these components and if one does not measure, one cannot improve.

Why are "Active Clients" important in the Income Formula?

Sales begin with clients - no people, no sales. Thus our starting point is Active Clients refers to the three components as "Handles". The handle, "Active Clients" is the backbone and the most important. Without clients, sales cannot happen and without sales, a business has nothing.

How To Calculate "Active Clients"

"Active Clients" are the total number of unique clients in a predetermined period.

You, as a business owner, must determine what your "predetermined period" is.

And you, as business owner, must figure out how you are going to keep "Active Clients" hot between purchases.

You must be in a position to meet your client's demands at certain predetermined busy times;

AND keep these same clients interested (or at least, simmering) in the meantime.

Week 1

We have Brown, Smith and Wyatt purchasing once in this first week.

Transaction # Date Client Amount
1001 13/10/2018 Smith $95.00
1002 14/10/2018 Brown $1,100.00
1003 15/10/2018 Wyatt $155.00

We have three "Active Clients"

Week 2

We have Brown buying once, Smith buys twice and returns goods once and Jones once. A new client Green appears on the scene and buys once and returns part of his purchase.

Transaction # Date Client Amount
1004 20/10/2018 Smith $100.00
1005 21/10/2018 Jones $200.00
1006 22/10/2018 Smith $55.00
C/N 345 22/10/2018 Smith -$80.00
1007 22/10/2018 Brown $150.00
1008 24/10/2018 Green $110.00
C/N 346 24/10/2018 Green -$10.00

We have four "Active Clients" in this second week.

Notice the number of purchases plays no effect on our number of clients.

Week 3

We have Brown buying twice and Wyatt once. Green and Smith have not purchased.

Transaction # Date Client Amount
1009 27/10/2018 Brown $90.00
1010 28/10/2018 Brown $1,100.00
1011 29/10/2018 Wyatt $155.00

We have two "Active Clients" in this third week.

Week 4

We have:

  • Brown buying twice
  • Smith buys once
  • Green buys four times and returns goods once
  • Wyatt twice.
  • A new client Black appears to buy once.
Transaction # Date Client Amount
1012 1/11/2018 Brown $100.00
1013 1/11/2018 Wyatt $200.00
1014 2/11/2018 Smith $55.00
C/N 347 2/11/2018 Green -$80.00
1015 3/11/2018 Brown $150.00
1016 3/11/2018 Green $110.00
C/N 348 4/11/2018 Green -$10.00
1017 4/11/2018 Green $210.00
1018 5/11/2018 Green $250.00
1019 5/11/2018 Wyatt $50.00
1020 5/11/2018 Black $500.00

We have five "Active Clients" in this second week.

Again, the number of purchases plays no effect on our number of clients.

When we look at "Active Clients" for the month, we have five.

But "Active Clients' average per week is 3 1/2.

Management must interpret the results.

There are 1 1/2 / 3 1/2 or a movement of 43% in "Active Clients".

The results will contribute to decisions on inventory, marketing and staffing resources.Credit** Invoice / Credit # ** Invoice / Credit # ** Invoice / Credit # **

David Seamans

Co-Founder at Elements, Retired CPA and Company Coach with 35 years of experience building better businesses.

Posted 29 Apr, 2020