Fire Your Bad Clients

Got a few bad-egg clients? Maybe you should fire them. That's right—I said "Fire them." Cut them loose. Give them the heave ho. Tell them goodbye and never look back.

I know you think I'm crazy—why would anyone say goodbye to hot prospects—but when you realize the positive impact it could have on your bottom line, you’ll wonder why it took you so long!

As business owners, we often feel that we should take on every client who comes calling. But that's not always the best choice: Just because someone comes to you who's interested in a business relationship doesn’t mean they're going to be a good client. In order to make your business as profitable as possible, you really need to assess your client relationships and ensure that they're win-win opportunities for you.

This is where the 80/20 rule comes into play: You should be focusing your time on the clients who are most profitable and who fit within your reason for existence. And you need to learn to say no to a potential or existing client when they don't fit within your business model. Most recommendations are that you should fire the bottom 10% of clients (in terms of profitability) each year so you can focus on your more profitable clients with your limited time.

Not sure this is the best idea for your business? Here are five types of clients you need to fire who are causing your business to be less profitable:

Focus drainers. In order to make the most of your time, you need to focus on your core competencies. Clients who don't fit within your targeted service or product focus may be costing you money. Have you started offering products and services that aren't a fit with your core business strategy just to keep some clients happy? If that's the case, perhaps you need to reassess whether that's a smart business move.

Low-profitability clients. If you're not generating money—or much money—from some of your customers, then you're on the losing end of a bad relationship. You only have so many hours in the day to work on your business, so make them count. Only work with clients with whom you'll enjoy a good return on your invested time.

Complainers. Ever feel drained at the end of the day because you had to deal with complaining clients who always want something for nothing? It's not worth it! It’s time to say good riddance and work with those people who truly appreciate what you do and are willing to pay for what you provide without complaining!

"Something for nothing" clients. Get rid of those customers who always want something but don't want to pay for it. They don’t value what you have to offer, and you constantly have to justify your prices. If they don’t value you now, they never will, and you'll constantly be justifying the work you do and the prices you charge. Only work with those people who understand the value you have to offer and will appreciate it.

Time wasters. If you're spending time with clients who waste your time because they're never ready or aren't willing to listen to your advice, run now. These will be the ones that will constantly assume more of your time without providing anything in return and then will wonder why they're paying you. You can’t help those who don’t help themselves.

As you take a long, hard look at your goals for the year, make sure that one of them is to run your business more efficiently, especially when it comes to managing your money. One of the ways you can do that is to more effectively manage your clients. So look at your customer profitability for 2006, and decide which clients you're going to fire to improve your 2007. It'll be one of the smartest moves you make.

Pam Newman is Entrepreneur.com's "Financial Management" columnist and president of RPPC Inc., which helps entrepreneurs succeed in their businesses through small-business training and consulting services in the areas of accounting and management. She's also the author ofOut of the Red, a management accounting guide for small-business owners.