Have you noticed that certain clients are responsible for the majority of your problem solving calls and rework? And, you probably have another group of clients who are generating the majority of your sales. That’s the Pareto (Puh-RAY-toe) Principle at work. Without going into the details (read them here), it’s a concept that holds 80% of an outcome is due to 20% of the causes. The percentages vary but the principle is astoundingly common.
It means 20% of clients are generating around 80% of sales. It works both ways, so 80% of your problems come from 20% of your client base. Those are the clients that may need to go. How do you know which clients to discharge?
Start by sorting your client list by total billings and draw a line at the top and bottom 20% of gross. Then, take some time to look over those accounts, putting a star beside the ones who are great clients to work with and an X beside those who aren’t. Ask your associates and staff for their input as well. We’ve all seen the client whose easy going and pleasant with a partner and overbearing and demanding with staff.
You’ll likely find that the majority of X’s are in the bottom 20% and the stars are in the top 20%. For the lower 20%, it makes sense to discharge the sub par clients and keep the pleasant ones. You’ll be winnowing out problem clients while retaining those who aren’t troublesome as well as continuing to provide service and generate billings.
But, sometimes you find an X client in the top 20%. Many firms aren’t in a position to discharge a well paying client no matter how difficult. The best strategy is to work toward making the relationship smoother and actively recruiting replacement revenue for future discharge. Don’t make the mistake of accepting poor treatment; that sets up a dangerous precedent for you and your firm.
Discharging a client can be handled in many ways but you should document the process for future reference and, possibly, insurance purposes. We’ll talk about that in more detail in a future post but here’s what the AICPA has to say.
Once you’ve taken action, your practice will be smoother and you’ll have time to spend with those star clients who generate more profit. After all, wouldn’t you rather work with clients who value, respect and pay for your expertise?