How To Calculate "Active Clients"

(About a 4 Min Read) 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

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.

What "Active Clients" Are Not

"Active Clients" are not exclusively the:

  1. the business' Customer Relationship Management system
  2. the business' debtors
  3. the business' past clients
  4. the business" current list of prospect nor
  5. any other list of people lying around the business premises.

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.

"Active Clients" predetermined period varies between industries.

In the Pet industry, pets eat every week so an Active Client is one defined weekly. The business owner should be concerned if the pet owner does not purchase every week.

In Australia, home mortgages are reworked every seven years on the average. People buy new homes or renegotiate the terms of their existing mortgages every seven years. Thus to a mortgage broker and project home builder, the Active Client has a calculated period of seven years.

It is entirely possible that the number of Active Clients in eg. a year, does not equate to the sum of the twelve months, fifty two weeks or three hundred and sixty five days. The calculations in reflect this reality. It is important that the business take this into consideration for effective management strategy.

Let's Work Through An Example

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.

David Seamans

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

Posted Jan 13, 2021