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My Week: Business Decisions

9th Feb 2019
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Hello folks. I am keen to get today's topic of My Week, off my chest. I wanted to draft today's My Week a lot earlier. Until now, I did not have the time.

Fee Increases 

We make business decisions that affect our practice every day. Some of the choices we make do not have a significant impact on the practice if a decision does not go in our favour. A good example of this is buying a laptop or a desktop.

Other decisions have a significant impact on the survival or otherwise of the practice. One of the decisions that fall into the category is fee increases on existing clients.

Cloud software has made clients less sticky. It is now much easier for clients to jump ship.

Okay, enough of my waffle now. I was trying to avoid the issue; I want to address here. It is difficult. I must soldier on.

Client Losses

In my previous My Week, I mentioned that I would increase fees of clients who are not viable, despite losing clients during the period I did not keep my eye on the practice.

Over the week, I went through my client list and emailed the less viable clients informing them that their increased fees from 1 April will be £x per month.

Client Maintenance 

Until one client decided to jump ship from 1 April, I did not give much thought to client maintenance and fee level.  You see, the client who decided to jump ship is a low fee client with minimal support. In other words, he is not a high maintenance client.

In two minds

I am in two minds whether I did the right thing by emailing low maintenance clients about fee increases. If they leave, I have lost easy money. At the same time, for the long term, it does not make business sense to keep them at their current fee level.

I hope the following explains my logic. Assume that my practice expands, there will come the point when I need another person. I want to hold off taking on another person as much as I can. If I continue to hang on to low fee clients, I will need to pay an additional salary a lot sooner. That means I will end up subsiding low fee clients.

Feel the fear and do it anyway

I have done what I think needed to be done for the long term. Of course, I have my doubts. I may be losing more income if other clients decide to jump ship. I am dreading the emails. It is wait and see now.

We all make critical decisions without having all the information.

Overall for the long term, what I did needed to be done. It is scary.

Replies (4)

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Hallerud at Easter
12th Feb 2019 09:29

Not sure I buy the argument that all clients need to contribute the same margin.

There are two metrics I would consider:

1. marginal cost/marginal revenue.
2. Waiting list of substitute business that can supplant existing with higher margin outcome if averse to employing extra resources.

Do appreciate why one might offload client volume for quality but if their business is, at the margin, profitable, and the more lucrative clients are not being prevented by resources from entering the client list, then the decision is not really a financial decision but a lifestyle decision, which personally I see as just as valid a reason to offload but I think, to not confuse oneself, the logic re the decision making does need examined.

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By Glenn Martin
15th Feb 2019 13:39

Interesting views as always FT but I am not sure I agree with your thought process.

I am happy to have a £500 client that gets a £500 job, but more likely to move on a £3000 client that draws £4000 of effort/service from me.

Good to see you blogging again.

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Replying to Glennzy:
By Red Leader
15th Feb 2019 17:01


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By chasmeehan
16th Feb 2019 11:29

Great example of real life decision-making under uncertainty and deciding your risk appetite ! I assume that one of the positives to the less viable clients is that they pay reasonably promptly so they make a positive contribution to cashflow. It will be interesting to hear what the loss rate turns out to be as I would expect that inertia will mean it is low unless as a group they are particularly price sensitive or there is a big network effect with contagion among them. Regardless of that you cannot make a profit by making a loss on every engagement, no matter how many of them there are !

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