Grow your small business the right way

For entrepreneurs, the goal isn't merely to expand -- it's to seek out new business that's truly worth your time.

Focus your strategy

small business trimming

Even if it means turning away business.

To create a business capable of blossoming for years, you'll have to prune it from time to time. Working with customers or offering products that can't achieve healthy profit margins can sap time and stifle growth, says Nat Wasserstein, managing director of Lindenwood Associates, which helps turn around small and midsize businesses.

So thin out ventures and customers that bleed your energy.

1. Figure out which services are worth it

Giving clients what they want is important, but it should never be your only criterion for the products or services that you provide.

When architect Bruce Wentworth considered expanding his 12-person company -- Wentworth Inc. in Chevy Chase, Md. -- he thought about what his firm excelled at: combining transitional-style interior design, which blends modern and traditional finishes, with detail-oriented construction. And he discovered there isn't enough profit in projects below $50,000.

"By the time we get involved in design, construction drawings, pricing, and permits, it's not the most efficient use of time," he says. The firm's sweet spot is in the mid- to high-end market -- kitchen remodeling, for instance, ranging from $70,000 to more than $300,000.

2. Rank your customers by their "value"

Pay attention to the quality of your clients: Are they high or low profit? Are they high or low maintenance? "You want to retain those customers who represent your highest profit margin," says Yoon Cannon, founder of Paramount Business Coach, a small-business consulting firm in Pennsylvania.

Even better: Find ways to cultivate more business from those clients.

Start by calculating the "value" of each customer, according to what they bring in annual profits, revenue, and effort. To do that, use the worksheet on the next slide. Then rank them, and focus like a laser on the top 20%.

3. Prioritize potential clients too

In 2008, Harry and Barb Haagen, who run a house-painting company with six employees, began to worry when sales dipped by more than 10% in the economic downturn.

The couple, from Doylestown, Pa., came up with a counterintuitive fix: They looked for ways that they could winnow the business even more. Harry recognized his strength was in craftsmanship, not low-cost jobs.

So Barb, who handles the phones, began screening callers. To those interested only in price, she explained the added value Harry provides.

If that didn't hook them, she moved on, freeing up time to focus on customers willing to pay for premium services. The strategy has paid off: Sales are up 15% this year.

  @Money - Last updated November 11 2013 12:12 PM ET
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