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Practice Tips - dross drop

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15th Jul 2005
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I can't remember who first introduced me to the phrase dross drop, but it will live with me forever. The concept is simple. You rate all our clients. You don't get too sophisticated about this. There's no need to. Three groups are quite enough.

The first group are those clients you want. They pay. They’re decent people. They have growth prospects. They introduce more work. They're low risk because they want to do things right. They listen to what you say. Most practices have a reasonable number, and undervalues them.

The second group are the ones who are demanding, have higher risk, don't refer much work, don't look as though they're going anywhere but you're happy to work for them so long as the price is right. The key question, of course, is getting the price right.

The third group is the rest. They're the dross. They are awkward about everything, including fees. They’re always late. They have high risk with the Revenue. They ignore everything you say. They're as likely to bad mouth you as refer a client. And let’s be honest, most of us get some of them sometimes. Some have a lot of them, all the time.

There's a simple rule to follow on dross. You get rid of it. There are no ifs, or buts, they have to go. Unless, of course, they can be transformed, and there's only one way to undertake the transformation. You simply have to advise them that you have undertaken a review of the cost of providing your services to them and regret to say that in the future their charges will increase by at least 50%. Of course, you need to do this at a timely moment which does not cause you professional risk, such as when this year's work is done and the fee for it has been paid. Then you expect the fireworks.

They will arrive. So just be resolute. Make clear you’ll be happy to supply information to a new accountant at no charge. Or they can accept the new terms, and sign up for them now, but there’s nothing in between.

Some will sign up. Almost certainly they will become model clients as a result. It's a well known fact that if people under pay for something they don't value it. The rest will go. With luck, those going will be balanced by those staying. The outcome may be an immediate improvement in profit, because the extra 50% on those who stay has no associated cost.

And for the best clients, you'll now have more time. They will appreciate that, and they’ll pay for it. Which will also add to profits.

After which you repeat the process with some who got into group 2 this time round.

It’s wise to remember that adding to the client base does not automatically mean extra profit. Getting rid of loss makers can be cheaper, quicker and more beneficial if profit is your aim. I don’t think you can lose by dropping the dross in your client base. Why not do it?
 

Richard Murphy
AccountingWEB contributing editor Richard Murphy is a sole practitioner chartered accountant but was previously senior partner of a firm for 11 years. He has also been chairman, chief executive or finance director of 10 SMEs. A collection of previous articles by Richard on practice management themes is available in Practice Management Zone

 

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