Even in questionable economic times, raise your rates. This may seem counter intuitive, however, this alone will free up some time, and evidence suggests that the loss of fees from clients who left was not greater than the increased fees from those who stayed.
Next, run off those marginal clients. The ones that abuse your staff, complain and are always slow to pay. They’re the ones sucking the life out of you and your people.
Businesses grow and develop over time resulting in having some clients who really may not belong in the business’s current business model. Additionally, some clients will have evolved and changed in ways that make them less desirable as clients today than they were previously. For some or another reason, businesses will have clients that should never have been clients in the first place.
For all of these reasons businesses need to take a long hard look at their existing client base, their client acceptance and retention policies, and then clean house.
Reeb & Cingoranelli suggest a simple system for classifying clients:
* A-clients: An A-client is one of the 15 percent to 20 percent of clients that make up 70 percent to 80 percent of the business’s revenues. If businesses sorted clients by revenues for the last year, they would quickly identify those clients that generated substantial income for the business.
* B-clients: A B-client is one that you are potentially under-serving but has the potential to generate sizeable revenues for your business. Turn them into A clients!
*C-clients: A C-client doesn’t have additional service opportunity other than what you already do, and the revenues generated are small. They require little work, are good clients, pay on time and are pleasant to work with. Don’t confuse the C rating with school and assume that they need to become a B rating to make the grade. A business can have C-clients and do well.
* D-clients: D-client’s are generally unprofitable resultant from poor charge-out rates, realisation or utilisation. They may also be hard to work with because they are abrasive, late payers, always want special accomodations, or only pay your last bill as an incentive for you to start their next project. At the end of the day you don’t want D-clients. This means that your objective is to either find a way to convert them into B or A-clients, or introduce them to your fiercest competitor.