Penalize your worst clients

We've been talking with others about a pointer in a list we linked to yesterday in this blog. Pointer number 6 says that when you move a business from a home office to an outside office, you should dump troublesome clients, then increase the price for your regulars. That would follow a version of the 80-20 rule (concentrate on the 20 percent of clients who earn you 80 percent of your revenue), but it also ends up penalizing your best clients.

Let's say you have 15 clients, each of whom gives you an average of $10,000 per month. If three of them are a bother and you dump them, you'd have to spread that $30,000 loss among the remaining 12, meaning a 25 percent increase in fees for the clients you like. Is that any way to treat your best customers?

Instead, I'd take the advice of financial management consultant and finance professor Edward Fields: Figure out what you could do to make the bad clients worth your while. Raise their rates. Tell them they have to pay up front and don't start any work until they do. Bill them a high hourly fee for any help they're asking out of the ordinary. Do whatever it takes to lessen the hassle and make you feel they're worth your trouble.

You might lose them anyway and have to replace that revenue, perhaps by raising rates (something you should do periodically anyway). But you also might make it a win-win situation. They pay more, you feel better, and you keep your best customers happy. That, to me, is the essence of good business.