Intuit Accountants News Central

The 80/20 Rule: Examine Your Client Base to Get Rid of Excess Time-Wasters

Article Post Date
January 24th 2011 by Jason Blumer

It’s a well-known rule in the accountancy space that 80% of your revenue comes from 20% of your clients. The rest of the clients are just a pain in the butt.

More genteelly stated, 80% of your efforts typically come from 20% of the causes (i.e., clients), and though this may or may not be true for your company or firm, it speaks to a deeper firm management issue: if you manage your firm in a particular way, then the 80% (revenue) can be better balanced among significantly more than 20% of your clients. Really, if you do the right things, every client should be a good client. You should pursue a 100/100 rule, where 100% of your revenue comes from 100% of your clients – meaning there are no slackers on the client list.

Client management is such an important topic to focus on in this new year. If you really know which clients you want to serve, your firm can be more enjoyable to work in, and you can make more money. Choosing between the right and wrong clients can determine whether your clients become major time-wasters for you and your staff and, ultimately, whether you are able to truly help clients. Time-wasters are more expensive to serve, are never happy and frustrate your staff to no end.

To make sure your firm is not bound by the 80/20 rule in 2011, here are three concrete things you can do now:

  1. Keep a clean client list. Firms talk this talk, but they don’t actually walk it. Even though a time-wasting client takes up more staff time than generally billed for, we still hope against hope that the client will eventually generate the promised income. But some clients never will, and you need the courage to let go of such clients when you realize it. As the leader of my firm, my job is to protect my staff from those less-desirable clients who actually take time away from my other (awesome) clients. Clean your client list often — you’ll get excess staff capacity and make room for good clients. Every time I’ve said goodbye to a time-waster, along has come another new client who was more enjoyable to serve and brought in more revenue. See more about this in a popular blog post I wrote some time ago here.
  2. Invest in the new client interview. This is often counter-intuitive for accountants. We don’t want to give potential clients our time because they are not paying us, yet, but you should assess your clients up-front, not on the back-end when you are ticking them off or dismissing them for being crappy clients. Invest enough time in interviewing new clients so that you know they will be the kind of clients you want for your firm. I’ve been known to spend a couple of hours with a potential new client, only to find out that the “fit” was not right. Wasted time? Heck no! They left on good terms with our firm, and we didn’t try to serve them in a way that didn’t match their needs. Meanwhile, the businesses we spend a lot of time with that do become clients are very happy about the time we invested in them. Of course, this, too, can get out of hand, so always watch your time. When the prospective client begins draining you for free information, then it’s time to part ways – and you should sense this within the first 30 minutes. Invest time up-front and avoid having to fire the time-wasters going out the back door.
  3. Establish the Firm/Client Value Agreement. One day, I figured out that our firm wanted to do business with a very particular type of client — one who matched our firm’s culture and the service styles of our staff. We knew what we wanted, so why not spell it out in an agreement with a potential client? That’s exactly what we did: We now send clients the Firm/Client Value Agreement. It tells the client what services we will perform as part of our business relationship, but also spells out the client’s part — a responsibility to listen to us, take our advice and demonstrate interest in his/her financial affairs, among other things. Such specifics may seem obvious, but they are important enough to actually put in writing. Laying out this agreement has brought up some great “talking points” as we’ve brought new clients in to the firm, and it is an effective way to make sure they are serious participants in our relationship. Then, if they later fail to live up to the agreement, we can fire them for “just cause.” It gives us a valid, tangible reason to eliminate such drains on our business.

There are more than a few other considerations I haven’t mentioned in terms of your company and time-wasters. But perhaps one word — from the title of this post — is the best way to close: Examine! Good business owners are in a constant state of examination as to where they are, where they are going (and why) and how they will get there. If your head is forever facing down, buried in a tax return, it makes it hard to step back and examine your business and how to improve it. I’m taking specific steps to make sure my firm can operate without me, innovating with new services and keeping our offerings fresh. Examination is a tool we often fail to use. Keep that in mind when deciding how best to eliminate the time-wasters in your firm — you owe it to the GOOD clients!!

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5 Comments »

  1. Jason, good point on #3 to spell it out… let’s the client know you are both serious about expectations both ways. I’ve “fired” my fair share of “bad” clients and try to make sure that new clients are a good fit but hadn’t considered spelling it out on paper so that clients know we are serious.

    Comment by ahs — January 25, 2011 @ 6:39 pm

  2. Another strategy is to set up a pre-determined review date to evaluate your relationship. Create a system for feedback from the client about what they like about you and don’t like about you. Then debrief their results in an annual meeting to determine whether you are a good fit to continue working together for another year. Then you are in the perfect arena to tell them you plan to continue working with them or give them a referral to someone else who you think might be a better fit for them.

    Comment by CoachScottGraham — January 27, 2011 @ 1:03 pm

  3. Thanks Adam, for the comments.

    Scott, I love your proactive approach to client management. We often leave client management to the “winds of change.” But being proactive in managing these relationships takes time – you’ll feel the benefits long term.

    Comment by Jason Blumer — January 27, 2011 @ 5:17 pm

  4. We wrote letters to our low profit clients and told them that if they wanted us to continue doing their work they would have to pay at least our minimum fee. It is amazing the number of new clients we have been getting that do not question the fees.

    Comment by Teresa — February 8, 2011 @ 3:26 pm

  5. I agree, Teresa!

    One of my friends, Ron Baker, a consultant on Value Billing, says “bad clients take up space for the good clients.” (paraphrased).

    Thanks for reading!

    Comment by Jason Blumer — February 9, 2011 @ 10:24 am

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