PODCAST - why some clients drain your profit
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I've been an entrepreneur since I was a freshman in college all the way back in 2009. One of the hardest lessons I have learned over the last two decades of entrepreneurship is that it can be as hurtful to your business taking on the wrong clients as it can be having zero clients. Now, I'm not saying that you and I shouldn't be grateful for people wanting to work with us.
That is amazing, 'cause that shows that you are putting value out in the world and people are [00:02:00] recognizing and seeing it. Well done, you. And if you are just starting out, I do believe that you should be a little less selective with your clients, but it's not for the same reason that you think you should be.
It's because you need to have experiences with clients. You need to experience working with different types of clients in order to really know who you want to work with long-term and not. With that being said, what you wanna do if you're starting out or if you really don't know how to define who you wanna work with and not, is you need to compartmentalize the work.
So instead of signing on working with someone for a year, or even six months, three months, or even a couple of months, I highly recommend that you test out working with that client. This is something that I do with every single client today. I not only have the ability for organizations like yourself to work with me in a group setting over a number of days in a given week, I also offer to specific potential [00:03:00] clients that I really feel passionate about what they're doing, the opportunity to work with me one-on-one for a week.
And what we're doing is we're evaluating each other during this week, deciding if we can see working with each other longer term. If you're a new entrepreneur or if you've been doing it forever, we need to test our clients as much as they need to test us, if not more. Well, on my most recent Plug the Profit Leak Challenge, I was working with a great group of entrepreneurs, and one of them, Darren, shared with me that he had this exact problem.
He found that by having the wrong clients in his business, it was holding the profitability of his business back. And, uh, he, he was able to unlock this because this is one of the things that we dig into in my Plug the Profit Leak Challenge. When we're looking at aligning the ROI, the return on investment, that you are looking to get, that your customers are looking to get, that your employees are looking to get, and other stakeholders that are important for your organization, what we're really doing is [00:04:00] unlocking the profitability potential of your company.
And part of this is making sure that you can figure out what the right clients are for you. I invite you to join me for my next Plug the Profit Leak Challenge by going to plugtheprofitleak.com or clicking on the link in the show notes or the YouTube description. So when we're looking at why some clients drain- Your profit, it's not always as straightforward as you may think.
And it's really because clients drain our profit in different ways. But Johnny, isn't it some clients just ta- cost us more money to maintain? Isn't it as simple as that? Well, you're right. That is the first way that clients may be draining your profit, is money. They may be costing you more money to serve than to not serve.
What does this look like? This looks like when you sell a project, when [00:05:00] you sell a product, and the revenue you bring in, the amount that you sold your program for, your product for, whatever it is, the revenue you bring in may be less than the expenses it takes to serve that client. This happens all the time with new business owners.
This happened with me for probably the first five, six, seven years of being an entrepreneur, and it really continued beyond that even, especially when I get to number two and number three. Because I, like you, love serving people. And I have also looked at the long-term profitability of serving my clients.
And this may be something that you're looking at, too, and you may say, "Well, Johnny, isn't that the whole thing, is you [00:06:00] build a relationship, you build credibility, you build trust working with an organization by doing work for free, giving away free lead magnets, give free training, free trials, et cetera, et cetera, et cetera?"
It is, but we need to make sure that when we're doing that, we're not also increasing our expenses too much. This is why giving away free programs, like a free course, or free tools, software as a service, or free access to a membership, or even trying a product of yours that doesn't cost that much to create, is a great way to start building that relationship.
Because each new person or customer or user that's interacting with our business isn't exponentially increasing expenses. And if you're playing the long game like me, then you see that you are starting the relationship, you're building the relationship over time. So it's not always about the revenue you make up front with a client, [00:07:00] but it is about how much are the expenses related to serving that client for free or for less than the total expenses for your business are.
So we have to be careful with this. We wanna make sure that we're keeping our expenses low and we're keeping our revenue up. That's how we increase profit. Profit equals revenue minus expenses. The second way that I didn't really realize this until even later in my entrepreneurial journey, really five years ago is when I figured this one out Is time.
You may see that when you're working with specific clients, they just take way more time than others. Now, when we start looking at both of these and we start pairing money and time together, which I highly recommend that you look at this when you're serving your clients, what we may see is that you're getting paid the same amount of money to serve two different [00:08:00] clients, but you're spending way more time with one of them.
You may even see that 10 of your clients are paying you the same, but you're spending way more time with one of them. If that's the case, that isn't a terrible situation because you can't always figure out if this is a thing, even if you do the test run with how I do my Plug the Profit Leak Challenge and my consulting intense as a select clients.
But the great thing is you don't have to continue working with that client. "But Johnny, I have a year-long contract with this client." Well, you may have to complete the year, but you don't have to re-sign the year. Now, if you really like working with the client, that's another story. You just have to make sure that this client isn't costing you so much time that it's decreasing your revenue in your business, or it's holding your revenue back in your business.
Also, if a client is taking you more time, you may as well charge them more money. So after that year, what I highly recommend is that you charge them more money than your other clients. [00:09:00] And I would charge them in proportion to how much time they're taking. Now, if you really like working with a client, you don't have to have a one-to-one increase based on this client takes 5X the time that this other client takes.
But you should at least look at 2X'ing the amount that that client's paying you. Time is more valuable than money, significantly more valuable than money. Because guess what? There are only 24 hours in a day That's a limited resource. Humans, you and I, we only live so many years. We only live so many days.
So time is more valuable than money. Money is not a finite resource. Even here in the US, we print more money. There's always more money. So when we look at money and time, I do believe that it is more valuable to filter out your clients based on time that they take of yours than [00:10:00] it is based on money. Now, if time is exponentially more valuable than money though, what you'll see is that if you start weeding out clients that take a lot of time of yours, you're actually gonna see a monetary return, and you'll see an exponential monetary return than if you just focused on the money part.
If you focus on weeding out based on time, you have the potential to increase your profitability even more than if you focus on weeding out clients based on money. Now, I know that if you're still listening to this, that you really care about your clients and the profitability of your business because you know that the more profitable your business is, the more clients you're able to serve and the more change you're able to make in the world.
Well, that's why I wanna share with you the third and probably the most important way that your clients may be draining your profit. Even more important than time is energy. And this is something I didn't realize until the past couple of years, is that energy is even more valuable than [00:11:00] time. While there's 24 hours in a day, how many hours in a day are you actually awake?
And even more so, how many hours in the day do you actually have the energy that you need not only for your work, but for your personal life, for your families, for your friends, for what you and I like doing? Well, it's less than 24 hours, even though I know there's someone out there who's probably like, "I haven't slept for three days."
Even if that's you, and that's the truth, you haven't slept for three days, you've been working, you've been grinding, your energy is decreasing. Your ability to perform at your highest level is decreasing every single hour, especially if you've been up for two or three days. So if we look at energy, for me, for work, and not even for work, I wish that I could spend less energy on work than I do, but I really probably only have six hours A day.[00:12:00]
And I really only wanna do this for three to four days per week. And hey, I understand that you're probably like, "Well, Johnny, you're just lazy." No, I just know myself, and I know that this is about what I have, and at best for four days, and then I need rest. I also don't wanna spend my most important asset always on work.
I wanna spend it with my family and my friends, and having a life outside of work. So if that is the case, then for me, energy is more than four times more valuable to me than time. So now I wanna help you sift through your clients and figure out which clients you should keep and which clients you should start making a plan to let go of, to either price out or just stop working with altogether.
So what I want you to do is grab a sheet of paper, and on one side of it, I want you to write energy, [00:13:00] time, and money. And I would write them in this order because, as we established, energy is the most valuable asset we have in our businesses. Time is the second most value asset, and money is the third. Now, I know employees are the most valuable, but what I'm talking about is from a profit perspective, from a you and I spending time, spending energy, spending money on things.
This is the hierarchy: energy, time, money. And then what you could do is on across the top is evaluate all your different clients. You can also take an Excel document or a spreadsheet and do this too. Put energy, time, and money on one column, and then on the top, go through all your different clients.
Here's what I want you to think about. There are really three types of clients that you and I work with. There are great clients. These are the ones that you just can't wait to get out of the bed in the morning to serve for a number of reasons. Maybe you're really passionate about what they do. Maybe they give you [00:14:00] energy, give you time back, and pay you a lot of money.
Awesome. There are also gonna be, you know, average or even, let's call this good clients. They may not be that passionate about what they do, but they treat you well, and they may not impact all of this very much. And then there are bad clients. Bad clients on the surface may not look like they take your energy or your time, and they may pay you a lot of money.
But if you dig deeper, you will see that bad clients will be monopolizing your energy and time. But even if you don't look at this, if you don't believe in what your client does, you don't like working with them, they're rude to you, they're mean to you, then it doesn't really matter if they check any of these boxes.
You should just get rid of bad clients. So what I've done on the board here is I want you to think about which clients are [00:15:00] great, average/good, and bad. If you have any that just right off the bat you consider bad, then we don't even need to take them through this exercise. Just please get rid of them. At the very least, price them out, but I don't know if I want them to say yes to any offer.
So make sure you absurdly price them out. Make sure that they have no desire to work with you, or come up with some other way to just stop working with them immediately. You need to do that Now, if we move to good or average, and I say average/good because these are clients that, you know, you're running a business, you're happy you're serving them, but they're not necessarily...
Your passion may not be there. Well, in this case, we do wanna look at energy, time, and money, because the reality is it could be a good client, an average client that you don't feel strongly about, but if they check any of these boxes, if it costs more to serve them than what you're bringing in, then I would get rid [00:16:00] of them.
If they're taking up way too much of your time, more time than your other clients, especially clients that are great and that you love working with, then I would probably look towards getting rid of them, or at least look at increasing how much they're paying you. And in this case, you might be able to fix your relationship with the client just by charging more.
It's very possible, especially if it's time. If they're just taking more time, then just charge them more. Now, I've worked with a lot of amazing people that I would put in the good/average client box, and, you know, if they weren't taking my energy, they weren't taking that much time, and they were paying okay, then yeah, I'd keep serving them.
Nowadays, I know that even if it's the best person, if I'm not that passionate about what they're doing and they check one of these boxes, then I am getting rid of them as a client, or I'm not taking them on as a client in the [00:17:00] first place. So for good and average clients, one check mark equals get rid of them or increase the price of your services for those clients.
Next, great clients. These are clients that you can't wait to serve every single day. It may not be the best decision for the profitability of your business to keep serving them if you're losing money on serving them, but if you really truly love them, they're not taking that much time, and they may actually be giving you energy, so energy becomes a positive in this case, then I think it's okay, even if you have a checkbox in money.
Now, you have to decide how long you're gonna do this for. That is the most important thing with great clients and this money piece. How long are you willing to serve them at a loss? And it's okay to think like this too, because you have other clients. You probably have other great clients that pay [00:18:00] you great, that don't take that much time, and they also give you energy.
So you need to be really careful with great clients. Bad clients is easy. Just get rid of them. Good/average clients, if they check any of these boxes of taking more money than revenue you're making, taking more time, or taking more energy, then you just get rid of them. For great clients, it isn't always that cut and dry.
Most great clients are gonna be giving you energy. Which is why I think it's okay to be a little more lenient on these other things. Now, with that being said, I have had a handful of great clients over the years that I've had to price out, and that really is the best way to handle great clients that you still wanna work with, is to at least price it so that you're breaking even on them.
Now, ultimately, you want to make money even on your great clients, so you gotta be really careful, but this is how you fix things with great clients, is you can compartmentalize and be like, "Hey, I'm okay [00:19:00] working with you for six months, and after six months we're gonna have to increase how much you're investing, though.
And then after another six months, we're gonna have to increase it again." But the fact that great clients increase your energy mean that you can be more lenient on these other ones. Now, what we ultimately wanna do is only work with great clients that give us energy, that don't take a lot of our time, and that pay us really well, and that is where I want you to move with your business.
'Cause what we're really doing is focusing on the top percentage in our business. So what we're really doing is we're using the Pareto principle, which is also known as the 80/20 rule, which says that 80% of the results in our business or profitability of our business comes from 20% of our clients, and 20% of the profitability of our business comes from 80% of our clients.
So what you and I wanna do is we wanna focus on the 20% of our clients creating 80% of the profitability of our businesses. And if you [00:20:00] want help with this, I invite you to join me for my next Plug The Profit Leak Challenge, and you should definitely grab a VIP ticket so that you and I can spend twice the amount of time together, and so that I can look at your business and you can ask me any questions that you may have in order to increase the profitability of what you have already built.
I've had clients within two days of the Plug The Profit Leak Challenge unlock $100,000 plus just by joining the challenge, just within a couple hours of the challenge. So if you want results like that, I invite you to go to plugtheprofitleak.com to grab your ticket today, and I'll see you in the next episode.
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AI is rising and so are we
