The Number Your Business Lives and Dies By
By: Hugh Pendleton, CEO
20% is the magic number—the number your business lives and dies by. It’s the percentage of clients who make up 80% of your profits. It’s also the percentage of clients who take up 80% of your time. Unfortunately, they are never the same 20%.
Businesses that focus on the top 20% of their customers thrive and look beautiful forever (they are the unicorns), while organizations that focus on the bottom 20% see their business die a slow, agonizing death. Or they limp along in customer satisfaction purgatory. So, same thing, really.
I’m going to teach you how to identify and keep the top 20% of your customers and get rid of the bottom 20% ( the ones who send you 10+ emails a day, pay late, and then complain about you to other people).
To begin, let’s take it back to basics with the ABCs of client relationships.
“A” clients:
Pay on time
Are a pleasure to work with
Refer you more business
“B” clients:
Pay mostly on time
Are reasonable and easy to work with
But don’t refer you business
“C” clients:
Pay late
Find fault with your work and make extra work for you
Complain about you to others, actively working against your efforts to attract new business
I’m sure you can name your top and bottom clients right now off the top of your head. But there are others you probably don’t even realize are enthusiastic advocates. Or even worse, there may be some who you think are great clients, but on closer inspection, the gilded paint has started to flake off.
Let your numbers do the talking. Run an Accounts Receivable aging report to learn who pays on time and who is consistently (and most likely currently) late. Who are your latest-paying clients and how are they affecting your cash flow? If they’re more than 60 days late, send them to collections or pursue legal action.
And what about working with your clients? Make a list of the top 3-5 qualities that make a client easy and enjoyable to work with and the 3-5 behaviors that make them a nightmare. Do they start a fire drill email chain every time a request goes unanswered for more than 20 minutes or do they send you a customized blanket with your brand colors during the holidays? (Spoiler—we got one such blanket from one of our favorite clients this year, and it sits in our “cozy corner” for anyone who gets a little chilly.)
Lastly, dive into your CRM system and look at who is successfully referring new business and who hasn’t made an effort to refer you at all. People love to share what makes them look smart, relevant, and interesting, so it makes sense to cultivate strong relationships with your “A” and “B” clients rather than wasting time trying to salvage a bad relationship with “C” clients.
Getting rid of customers sounds counterintuitive, but it’s necessary for growth. It’s like pruning a tree—you get rid of lousy growth to promote healthy new branches. I don’t recommend shedding all of your C clients at once (although if you can—major kudos). Start with just one and watch the positive impact it has on your day-to-day operations. Then, scale up the pruning and continue to evaluate your clients on a quarterly or semi-annual basis.
Imagine doubling your number of “A” clients and halving your “C” clients. Just thinking about it makes your unicorn sense tingle, doesn’t it?
If you want more advice on how to shake up and invigorate your client relationships, talk to us. Our team of bookkeepers can identify “C” clients faster than you can hit unsubscribe on a boring Youtube channel.
