If you don’t track the time you and your staff spend on a client’s matters, you can’t be sure the relationship is profitable. Most likely the 80/20 rule holds- 80% of your profit comes from 20% of your clients- but it might not be the same 20% that brings in the most revenue. You can have a high revenue stream and still lose money on a client if he’s not paying the full value of the work you are delivering.
Back to timekeeping. If you have a value-priced billing arrangement, you still need to track time. That information will help you understand client profitability; it will also help you make better estimating and pricing decisions. Additionally, you’ll be more diligent in looking for ways to be more efficient, perhaps delegate or outsource tasks that don’t require your efforts or credentials.
Track time as if you were billing hours. Include decent descriptions and don’t fudge the data. Review the cost/benefit equation at least quarterly, more often if you see the hours creeping up. Start characterizing your clients in terms of complexity and hand-holding. When estimating, add a percentage to your fees if you know the client will require more time than a typical client would for the same work. Your goal is to maintain a target profit margin for all the work you do; sometimes you have to add a premium for hand-holding.
If you find that a client’s work is always low-to-no margin, or worse, that you’re losing money, you have three choices:
- Go back to the client and ask to increase your fee to cover the costs.
- Seek ways to reduce the cost of dealing with the client, set boundaries, look for ways to delegate, outsource or eliminate expenses.
- Set an intention and transition the client out of your practice, timeline depending on the matter & relationship. Your client wouldn’t do work he isn’t paid for, he shouldn’t expect you to do so.
Client profitability is often more art than science, but you need to be as “accurate” as possible. Even if you start by simply assigning a complexity factor to a client, you’ll begin to be aware of the cost of doing business with one client vs. another.
Final thought: All revenues are not created equal!
Your clients don’t do work they don’t get a fair fee for, surely they don’t expect you to. (OK, well, they might, I know they’re out there- just remember that those are the clients you know you don’t want to work with)
Check out the 30% discount on my Get A Life! practice management teleseminar. Training, coaching & community for three months for just $185/month. http://www.successfullysolo.com/get.html
