For the last ten years, I've been pushing clients to apply a discipline that is scary to most - and rightfully so. I now have enough clients doing it that I'm comfortable sharing it, as it's no longer simply theory. The discipline is listing all of your clients from the most profitable to the least, and then cleaning up the bottom 10 percent.
One client that fully embraced this discipline calls it the "The Dirty Dozen." Every quarter, they look at their "Dirty Dozen" and make improvements. Not coincidentally, after four years of applying this discipline, they sold the company for many multiples. The key reason for its value was its unusually high profitability compared to competitors.
Just imagine, for a moment, replacing all of your existing low-profit or non-profitable clients with the same number of profitable clients. As a result, your revenue would potentially stay the same, but your profits would increase. All else being the same, you would increase profitability while keeping capacity the same. Once this basic concept is clear in your mind, it should help you make some great fundamental business decisions.
Here's how it works: List all of your clients/customers from the most profitable to the least profitable, take the bottom 10 percent, and clean them up by doing one of the following three actions with each:
1. Raise fees
2. Fire them
3. Have a heart-to-heart to
o get them to play nice
o and/or become lower maintenance
Just do one. While it is always the scariest doing the first one, it feels great. If you fire one, make sure to replace them with a profitable one. Remember, you don't need them all.