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Using 80/20 to Filter New Clients

When business owners go through the 8020 exercises, one of their frequent AHAs is that they have a number of clients that really don’t belong in the business. This can be because they don’t buy the most popular or profitable product/line of service or because they simply don’t have enough business to justify being a customer of the business as it now is.

When you look at the bottom 50% of your clients numerically and the revenue that they bring into the company, it is often difficult to take the actions that you know you should take if you remove emotion from the equation.

Firing employees is difficult enough, and they are just a cost. Firing clients is exponentially more difficult because they bring in revenue, and most business owners hate to give that up. One of my clients had a small division that worked on a line of business that was marginally profitable at best. When I suggested to him that he should close it down, his response was “I join your organization to grow revenues, up to shrink them” and this is a line of thinking that many people share.

What he came to realize was that while they didn’t seem to take up a lot of time, energy, and resources, they actually did. As I was fond of saying to him during the period when I was trying to convince him to make the move: “it’s not the space they take up in your office, it’s the space they take up in your head”.

Firing existing customers may be difficult, and that is perfectly understandable as so many of them come with a back story of some kind. What is much easier is to become ruthless about new clients that you take on, and to make sure that they fit the criteria that now apply to your business in its current stage.

The best way to do this in my experience is to develop an intake questionnaire that identifies the characteristics of a new potential customer and matches them against the new ideal client profile that you are developing coming out of your review of your largest customer to identify the ones you really want (see article ideal client profile).

Some of the things I have seen that you may choose to put in this questionnaire are around identifying how much business you think they can ideally generate in a given period.

  • One of my clients is a distributor who identified that he wasn’t interested in taking on any new customers who couldn’t generate at least a specified minimum monthly purchase. That wasn’t to say that they had to buy it all from him upfront, but he wanted to identify what their capacity was.
  • Another client is a company that develops websites and looks to develop a marketing program for those clients. They don’t want any clients who don’t have a marketing budget at an appropriate number because they simply don’t have the capacity to be able to buy services the company wants to deliver.

There are any number of different things that might be on an intake questionnaire,, and you will discover what these might be as you start to go through the process.