Sometimes You Gotta Cut The Fat

I was out in LA last week, meeting with a business mentor, and he reminded me of something that I've lost sight of, at times -- and it occured to me that the timing for YOU, couldn't be better for a similar reminder as we gear up for tax season.

You see, the Pareto principle has become a bit of a cliche, unfortunately. You know it, perhaps as the "80/20" rule. Today I'd like to issue you some marching orders which will put it to, in my opinion, its most profitable use. 

I've discussed before with you how 80% of your profits (key distinction there--NOT revenue) likely comes from 20% of your clients.

And 80% of your hassle (and LOST productivity and profits), similarly, comes from about 20% of your clients and/or vendors.

It's time to cut the fat.

Really -- is there a BETTER time than right now? Here's the simplest way to go about it: Raise your prices on these clients, and show no mercy. Now, I'm all for mercy. Benevolence is a good thing. But when it's coming at the cost of your mental health (or your staff's), it's time to take a real hard look at the REAL P/L of dealing with this particular client, taking everything into account (I'm referring to emotional, spiritual and true time costs).

Go through your client files now, and identify 10% which you hate dealing with, provide little revenue, and much hassle. Ask your staff for their input too (you'll be a hero to them if you step in with this sort of action -- trust me, I've done it a few times here at BuildaHerd), and you should be able to easily identify a few stinkers, at least. 

By the way, this is actually the *kind* thing to do! Before tax season strikes is the perfect time to shoot them a kind email, or make a nice phone call, so that they have the chance to take their problems (and their profit-drains) to your competitors.

Say something like:"Mr. Jones, I'm sorry to say that the amount of work which we've had to do on your files over the last couple years necessitates that we raise our prices to $XYZ per form/hour.We've taken on some new clients, and our prices simply have to go up. If these are too highfor you, I'd be glad to recommend another competent tax professional in the area."

Hey, maybe they'll TAKE your price increase (teaching you a small lesson in the process, perhaps, that your prices are too low to begin with -- a very likely reality), and they become a PROFITABLE client (even accounting for the emotional toll they inflict).

Otherwise, you can sic 'em on your competition. They might even THANK you!

You build up some good will in the area, AND your book of business gets a whole lot cleaner:).

Try it next week. Feel free to thank me later!

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