"Active Clients" - What They Are and Are Not

(About a 3 Min Read)

The Sales formula:

Income=Customers * Average Sale Value * # of transactions

is impossible to apply to the typical SME situation.

"Customers" must be broken down into "Active Clients" and "Inactive Clients"

Defining "Active Clients" is the bedrock of Elements.app.

"Active Clients" is essential to the Sales Equation relevance.  

Elements.app relies on the definition of "Active Clients" and "Inactive Clients".

Let's start with what "Active Clients" are not.

They are NOT the business's:

  • CRM database
  • Current debtors
  • Non current debtors
  • Leads database
  • Or any other list of names

Depending on how you use each of the above, they may be subsets of "Active Clients".

"Active Clients" are those customers who transacted during the business sales cycle.

"Transacted" defined as: 

  • a commitment to pay for or 
  • an entitlement to a refund or adjustment for goods or services. 

A transaction is not:

  • a sales order
  • a letter of intent
  • an application for credit
  • the actual payment, refund or adjustment

Evidence of the transaction is by raising an invoice or credit note.

READ MORE:Inactive Clients:Churn is dead

"Business Sales Cycle" is:

The expected duration between sales under regular circumstances.

This assumption relies on the business owners' understanding of their business.

This may be easier to explain using author's examples.  These all come from personal experience with my reasoning included.  The business owner / board must reach their own conclusion.

  • Animal retail / Pet Food:7 days Animals must eat on a regular basis.  Their owners would typically shop once a week.  

  • Mortgage Broker:7 years In Australia, the mortgage is rewritten every 7 years on the average.

  • Project Home - Non-commercial builder:10 - 20 years Families grow up and needs change.  Dad and Mom want a granny flat and the kids can have the house.  Generational movement.

  • Women's wear: 3 months Seasonal and fashion trends.

  • Restaurants / Takeaway: 7 days People eat every day.  Collect post codes and stay in touch.

The "active clients" vary according to the date range.

This is plain to see on the following example:

Month Names # active clients
September Smith, Jones 2
October Smith, Green 2
November Smith, Brown 2

The temptation would be to sum the number of active clients (6) if reporting on this quarter.

In reality, there are 4 active clients for this quarter (Smith, Jones, Green and Brown).

The management discussion would be which reporting period is the most appropriate to dictate strategy choices.

David Seamans

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

Posted Apr 23, 2020