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how much are your clients costing you?

businessman pole vaulting toward his goalcalculate your opportunity number to figure who’s worth your time.

by sandi leyva

each of us has 24 hours in one day. most of us have annual revenue goals. a few of us have monthly, weekly, daily or even hourly revenue goals.

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hopefully you know what your revenue goal is. (if not, you should!) if you don’t pull in that level of revenue for the week or month, then you’ve missed your plan.

let’s say you want to generate $1 million in sales for the year. on average, you need to pull in $20,000 a week. that’s $4,000 a day.

now what if four out of five people who contacted you about your services were ready to pay you $200 for a one-off job? you might spend an hour speaking with them and 10 minutes on their contract, with your team spending an hour on legal and accounting compliance. you or your team perform the work; then the client has another hour of questions. you just lost $1,000 on a $200 job. it’s just better not to take it.

instead, how about if you spent those couple of hours on a $50,000 proposal? even if it takes you 10 times as much time to finally close the deal, it’s time well spent. spending $5,000 to win a $50,000 deal is time well spent. the problem is we don’t look at unbillable time that way. we usually just chalk it up to overhead.

here are a couple of tips to think about when you are considering a new project or new clients.

  1. know exactly how much it costs to bring on a new client. you might still take an unprofitable engagement assuming the value/profitability of that client increases each year you serve them. but don’t take on a client who argues with you on fees, wants to change your contract, or is far below a good project size for you.
  2. spend your time wisely. stop doing things for free for people who have not helped you financially in some way over the years. stop writing off your time. stop answering client emails for free. stop spending hours doing something for free unless it will lead to an excellent relationship or good revenue down the road for you.
  3. compute your opportunity number. that’s the number by which you will suffer too much loss if you take on that client. it might be $20, $2,000, $20,000 or $2 million. for example, your number might be $5,000. any project below a revenue of $5,000 is not worth your time. any opportunity at $5,000 or above, you should actively pursue.
  4. post that number on a sticky note, or better, on your vision board. every decision you make should factor in your opportunity number. the way you spend your time on an hourly basis should factor in your opportunity number.
  5. set up a filter in your marketing funnel to direct clients below your opportunity number to low-end products or services that can be delivered by admin, entry-level staff or through automation. do not let them gobble up your owner’s time or your overhead. it sounds mean, but if you do, you won’t make your numbers, or you will have to work long hours to do so.
  6. take a look at your to-do list in light of your opportunity number. you may have a lot to cross off, and a few new tasks and prospects to add.
  7. to get the quantum leap, work your top opportunities. check out who lands on your doorstep, but make more time to go after who you want.

what’s your opportunity number?

 

5 responses to “how much are your clients costing you?”

  1. richard buller

    too many practitioners forget this is a business and not a charity and give away work. guilty as charged…but getting better at it. i rent space from another practitioner who gives away tons of work like property tax forms, resale certificates, corporate renewals with the secretary of state (even pays postage for non paying client work!!!). he doesn’t understand why his staff is frustrated. staff know when they’re doing freebies when it should be compensated. on top of that, those clients tend to have attitude problems as they put no value on what you do. i’ve culled most of those and am looking at replacing the rest. good article that practitioners should think about….

  2. william

    how do i tell my existing clients i can’t just keep answering audits without payment.

    • sandi leyva

      hi william,

      your scope of services should be clear in your engagement letters. i like to do a master contract with work orders. get clients used to added work orders. 2 other ideas: include answering irs letters/audits in your annual fee or give clients 2 prices: 1 includes answering letters/audits; the other explicitly excludes it and makes it an extra. caveat: most practitioners waive fees when the irs letter is due to their error. this year it’s tougher since the irs is making so many errors of their own – that’s a gray area.

  3. van (attorney/cpa)

    the gist of your article is a little too cynically reductive to me. i have some wonderful clients whom you probably wouldn’t consider “worth my time.” and it seems part of my “job” to simply help people out if i reasonably can (and have the time), with maybe even no fees attached.

    • sandi leyva

      thanks for your comment van. i understand everyone has different goals, including non-monetary ones. i’m glad you’re making an intentional decision about them.