plus 10 sample criteria.
by rob nixon
every client you have should be an “a” class client.
more on strategy: your clients on your terms | mindset is everything | the entrepreneurial accountant: an oxymoron? | how to structure your firm for success | why average project value matters | the bizarre habits of accountants
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you have all sorts of clients. some have great potential, they are open to new ideas, they pay your bills on time, are pleasant to your team and are generally great to deal with – they might be your a’s. others have no potential, they are closed-minded, they moan and groan about everything and are a general pain in the rear – they might be classed as a “d” class clients.
there is no right or wrong criteria – each firm is different with the types of clients it wants to deal with.
if i were running an accounting firm, here are my criteria for an ideal client:
- is an existing trading business with employees – not a startup.
- the business has potential.
- the business makes an existing profit (pick a number!).
- the business type is in line with my niche market(s) that i want to serve.
- the owners are ambitious.
- the owners are open to new ideas.
- the owners are nice people to deal with.
- they understand and play by my rules – pay me on time, adhere to my workflow requests etc.
- i can make more than 80 percent gross profit (client fee less direct labor costs) on the client.
- they are not “price shoppers” looking for the cheapest accounting firm.
that would be my list – you make up your own criteria. whatever your ideal list my guess is, only 20 percent (or less) of your current client base fits your new criteria. my guess is also that your current 20 percent represents around 80 percent of your fee base – or at least a substantial part. so the question is begging to be asked – why do you keep the rest?
normally you keep the rest because of cash flow reasons. if you just had one criteria of profit per client (your profit that is) then you would be staggered by how unprofitable most of your clients are.
do this exercise. put all of your clients into a spreadsheet with the following four columns:
client name annual fee total hours to deliver annual fee average hourly rate
divide the annual fee by the total hours (include non-charged time as well) and you can work out the average hourly rate per client.
if you had a firmwide average hourly rate (revenue divided by client hours charged – so if your revenue was $2 million and you had 10,000 client hours charged then your firmwide average hourly rate would be $200) of say $200 then you would find that your client range would be from around $120 to $300. many of your clients would be well below your average – some of your largest clients (by fee) will be under the average.
maybe you need to have a discussion that goes something like this with clients you are undercharging:
“mr. and mrs. smith, we are thrilled that you have been a client of the firm for the past 10 years. you are great to deal with and we appreciate your business. what we have found, after some careful analysis, is that we have actually been undercharging you for the past 10 years – by about 30 percent per year. what we are not going to do is send you a whopping great big bill to rectify the problem. that’s our mistake and your gain. going forward, however, your work needs to be charged at x otherwise i am sorry we cannot do your work anymore.”
give your c and d class clients a shot at being a and b class clients. if you communicate your new direction and criteria they may want to play ball – at least give them a chance. if they do not want to be on the new team then get rid of them – quickly. they are sapping business oxygen from you and your team. they are making you miserable and they are sending you to the poorhouse.
your decisions of the past got you to where you are today. so be it. you can always change. it does take some courage to change, however, if you remember that you are only on this planet once (ok, some would say otherwise) and it is your business, then why not change?
why not take some courage pills and let them go?
it is a very cathartic experience to ask a client to leave. the angst, energy and frustration caused by clients you do not want to deal with can be an enormous drain on team morale and sanity.
while i’m at it, most of your new business clients come from referrals. make sure you never accept a referral from a d class client – their friends are idiots as well!
one of our coaching club members started their journey years ago with hundreds of clients – all types of clients accepted by the firm over many years. they made a conscious decision to set a criterion for the type of work they wanted to do for clients – which was a minimum of quarterly reporting. they communicated with all of their clients to see which ones wanted the new level of service. most did not, so they were referred to other accounting firms. they also educated their referral sources (bankers, brokers, lawyers etc.) of their new direction and asked them to only refer prospects that fit their criteria.
after a lot of culling they ended up with 109 clients and an average fee of $32,000. profit at this stage was running at around 40 percent. eighteen months later they did another “cull” and now they have 70 clients with an average fee of $45,000. their profit now runs at around 50 percent.
take charge. make some decisions and design your client base with who you want to deal with in the manner you want to deal with them. remember – it’s your business, not your clients’ business.